The Effects of Foreign Direct Investment in the Industrial Sector on Regional Inequality

After economic reform in 1978, China gradually became the first country among developing countries and the second in the world, after the USA, in term of stock of inward FDI. Sustained GDP growth, high rate of capital return and brisk economic development made China one of the best destinations for foreign capital. This spectacular overall performance, however, hides one dark spot that the benefits of this growth have not been evenly distributed in different regions of the country. This book analyzes the impact of FDI on industrial sector in different regions during 2003-2013, using descriptive and quantitative models. The results of this research show interdependency of FDI in industrial sector and regional inequality in China (e.g. Regional inequality affects FDI location choices and FDI affects regional inequality). The findings of this research show that economic and non-economic indicators such as technology level, human capital, infrastructure, and government policies affect regional inequality and foreign firms' location choices. Despite the improvement of all indicators in some provinces, such as Henan and Hunan, in central and western regions, they could not absorb significant amount of FDI which show the strong impact of agglomeration forces in absorbing FDI into Chinese coastal provinces and discouraging firms to spatially disperse their production stages. Hence, the results of this thesis also confirm that FDI inflows have widened the gap between rich and poor regions during the research period.