FDI and Regional Income Disparity in Host Countries: Evidence from China

While foreign direct investment (FDI) might promote income growth, many developing host countries have been concerned about the impact of FDI on regional disparity. Using the Chinese data, we tested how FDI affects income inequality across provinces in the 1990s. The non-parametric analysis based on Spearman Rank Test suggests a positive correlation between FDI stock per capita and inequality. Then an empirical model is specified and estimated with direct measures of regional disparities in income and FDI, along with other determinants. The estimates indicate that the dramatic rise in the regional FDI disparity contributes largely the widening regional income inequality in the 1990s.