The Impact of FDI on China’s Urban–Rural Income Gap

Lifan Shi, Changchun Zhu (), Decai Tang () and Valentina Boamah
Additional contact information
Lifan Shi: Faculty of Humanities and Social Sciences, City University of Macau, Macao 999078, China
Changchun Zhu: School of Business, Jiangsu University, Nanjing 210013, China
Decai Tang: School of Management Science and Engineering, Nanjing University of Information Science and Technology, Nanjing 210044, China
Valentina Boamah: School of Management Science and Engineering, Nanjing University of Information Science and Technology, Nanjing 210044, China

Sustainability, 2022, vol. 14, issue 20, 1-17

Abstract: Since the reform and opening up some forty years ago, China has suffered from a capital shortage problem. To both solve this problem and satisfy its economic and social needs, China has been bringing in foreign investment, much of which has gone toward economic reconstruction. However, with the continuous inflow of foreign direct investment (FDI) into China, not only has the gap between rich and poor become increasingly wide but, due to China’s unique dualistic economic structure, the gap between urban and rural areas also appears to be widening. This aspect of the problem has attracted the attention of scholars around the world, as it may affect the future sustainable development of China’s economy and society. Cognizant of the need for practical solutions, this study conducts a more in-depth study of the relationship between foreign direct investment and the urban–rural income gap in China. Based on a review of previous studies and panel data from 30 Chinese provinces, this paper argues that FDI will affect this income gap through mechanisms such as employment structure, industrial structure and international trade. The findings of this study suggest that FDI inflows will first improve income inequality between urban and rural Chinese at a point in time but then have a worsening effect. In addition, China’s three major economic zones are examined, with results showing that the overall impact of FDI on the urban–rural income gap in China displays an inverted ‘U’ curve. Today, the impact of FDI on the urban–rural income gap is on the right-hand side of the curve, with regional differences in its impact. Urban–rural income inequality in the eastern region responds the most to FDI.

Keywords: foreign direct investment; the urban–rural income gap; regional difference; Kuznets curve hypothesis (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/14/20/13047/pdf (application/pdf)
https://www.mdpi.com/2071-1050/14/20/13047/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:14:y:2022:i:20:p:13047-:d:939853

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().