The Impact of FDI on the Income and Income Gap of Urban Residents

Abstract

Combining the micro and macro data from Chinese Household Income Project, this paper manages to explore the impact of FDI on income and its gap. According to estimation results of OLS, foreign direct investment has a positive effect on residents’ income after controlling for gender, age, education, work experience and marriage. The test results are still robust after introducing fixed effects of career, industry, ownership and province. Using the reciprocal of shortest distances between every city and coast-line as instrumental variable of entry degree of FDI to regress get corresponding result. Furtherly, this passage examines whether FDI will enlarge income gap of different types workers. Evidence shows that: The positive impact of FDI on male labor is greater than female labor; the positive impact of FDI on high educated labor is greater than low educated labor and the positive impact of FDI on high-income earner is greater than low-income earner. In other words, FDI enlarge income gap while improving income level of residents.