Foreign Direct Investment and Regional Inequality in China

14 Pages Posted: 14 Oct 2009

See all articles by Kailei Wei

Kailei Wei

Middlesex University - Business School

Shujie Yao

University of Nottingham

Aying Liu

affiliation not provided to SSRN

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Foreign direct investment (FDI) is blamed for being one of the main factors widening regional inequality in Chinese regions since it is highly unevenly distributed spatially. If this logic were true, then controlling the scale of FDI could be a solution to reduce regional inequality. However, it is difficult to reconcile the positive effect of FDI on economic growth with its potential “negative” effect on regional inequality. Using the largest panel dataset covering all the Chinese regions over the entire period 1979–2003 and employing an augmented Cobb–Douglas production function, this paper proves that FDI has been an important factor responsible for regional growth differences in China. However, it suggests that FDI cannot be blamed for rising regional inequality. It is the uneven distribution of FDI instead of FDI itself that has caused regional growth differences. The research results have important policy implications on regional development in China relating to FDI.

Suggested Citation

Wei, Kailei and Yao, Shujie and Liu, Aying, Foreign Direct Investment and Regional Inequality in China. Review of Development Economics, Vol. 13, Issue 4, pp. 778-791, November 2009, Available at SSRN: or

Kailei Wei (Contact Author)

Middlesex University - Business School ( email )

The Burroughs
London, NW4 4BT
United Kingdom

Shujie Yao

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Aying Liu

affiliation not provided to SSRN

No Address Available

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