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Foreign direct investment and China's regional income inequality

Author

Listed:
  • Yu, Kang
  • Xin, Xian
  • Guo, Ping
  • Liu, Xiaoyun

Abstract

China's widening regional income inequality coupled with its pronounced regional disparity in foreign direct investment stock since 1990 has claimed the attention of many scholars. While some researchers confirm regional disparity in China's foreign direct investment, others attribute the widening regional income inequality to this regional disparity. This paper thus assesses the impacts of China's stock of foreign direct investment on its regional income inequality using simultaneous equation model and the Shapley value regression-based decomposition approach. Our results suggest that China's stock of foreign direct investment has accounted for merely 2% of its regional income inequality. Furthermore, the contribution ratio of per capita foreign direct investment stock to China's regional income inequality has relatively been on a steady decline since 2002. The decomposition results also reveal that provincial per capita physical assets account for over 50% of the nation's income inequality and 65% of the increases in income inequality since 1990. The other two important determinants of regional income inequality are province location and educational level. However, educational level is found to have a decreasing effect on regional income inequality.

Suggested Citation

  • Yu, Kang & Xin, Xian & Guo, Ping & Liu, Xiaoyun, 2011. "Foreign direct investment and China's regional income inequality," Economic Modelling, Elsevier, vol. 28(3), pages 1348-1353, May.
    • Handle: RePEc:eee:ecmode:v:28:y:2011:i:3:p:1348-1353
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    7. Guangdong Li & Chuanglin Fang, 2014. "Analyzing the multi-mechanism of regional inequality in China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(1), pages 155-182, January.
    8. Yuan, Shenguo & Wu, Zhouheng, 2021. "Financial openness and Chinese regional growth imbalance: New insight from spatial spillovers," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    9. Tsun Se Cheong & Yanrui Wu, 2013. "Globalization and Regional Inequality," Economics Discussion / Working Papers 13-10, The University of Western Australia, Department of Economics.
    10. Wai Choi Lee & Tsun Se Cheong & Yanrui Wu & Jianxin Wu, 2019. "The Impacts of Financial Development, Urbanization, and Globalization on Income Inequality: A Regression-based Decomposition Approach," Asian Economic Papers, MIT Press, vol. 18(2), pages 126-141, Summer.
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