Abstract
The purpose of this paper is to analyze the correlation between foreign direct investment and urban-rural income gap. Co-integration is applied to empirical study the impacts of foreign direct investment to urban-rural income gap from 1990 to 2009 in Jiangsu province. The empirical results show that there is a stable long-term equilibrium relationship between foreign direct investment and urban-rural income gap. Foreign direct investment has significant effects to expand urban-rural income gap. The results also find that there is significant impact of urbanization and financial development efficiency to expand urban-rural income gap. While the scale of financial development reduce urban-rural income gap. The Granger cause test results show that foreign direct investment is Granger cause for urban rural income gap. Empirical results suggest that in order to effectively reduce urban-rural income gap, foreign direct investment policy must be formulated to support rural economic development.
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