The Impacts of Import Penetration on Regional Income Inequality in China: A Global Value Chain Perspective

Abstract

Increasing and persistent regional income inequality contrasts strikingly with the world economy's outstanding performance, especially in China. Constructing direct import penetration and indirect intermediate import exposure indexes within a global value chain framework and evaluating regional disparities with nighttime light data, this analysis uncovers the effect of both direct and indirect import penetration on the regional income gap in China, and delves into potential mechanisms from economic development, industrial structure, and factor mobility. Our findings suggest that the positive effect of indirect import exposure of intermediate inputs lies in minimizing regional income disparities, while the effect of direct import exposure remains obscure. In addition, growing disparities in trade openness and fixed capital investment exacerbate regional inequality, in contrast to the positive role that government intervention plays in narrowing the income gap. These results are expected to hold for other countries at similar stages of development.