The Effect of Foreign Direct Investment Inflows on Income Inequality: Evidence from China

Abstract

This paper uses data for China during the period 1982-2010 and tests the effect of FDI inflows on income inequality, which is measured by the urban Gini coefficient. A small-sample cointegration test and autoregressive distributed lag bounds test are used as the cointegration tests. According to them, the variables under consideration are not cointegrated. The GMM estimation results show that income inequality worsens with FDI flows into China. The evidence from China shows a non-linear effect of FDI inflows on income inequality. © 2015 by De Gruyter 2015.