Foreign trade, foreign direct investment, and urban inequality: The effects of China

Abstract

ABSTRACT The concentration of population and socioeconomic activities in large cities in developing countries has sparked broad concerns regarding inequality in national urban systems (NUS). This paper examines how Chinese foreign trade and overseas foreign direct investment (OFDI) affected host countries’ NUS from 2000 to 2018. Chinese foreign trade reduced NUS inequality, particularly countries with more cultural distance from China, while OFDI increased NUS inequality only in mineral-rich countries. For Asian Belt and Road countries (BRCs), Chinese foreign trade reduced NUS inequality, especially those with greater institutional distance to China and more government intervention. Chinese OFDI plays the opposite effect, notably for high government intervention countries. Globally, roles of foreign trade and OFDI change with resource endowments and cultural distance, while for Asian BRCs, these roles change with institutional distance and government intervention. This paper bridges gaps in the effects of Chinese foreign trade and OFDI on NUS inequality.