Foreign Direct Investment and Industry Income Gap

Abstract

Since the reform and opening-up, FDI has played an important role in people’s daily life. In the early years, FDI went mostly to manufacturing. However, FDI absorption by the service industry has increased significantly in recent years. In this context, from the perspective of industries, it is very valuable to study the impact of the scale of FDI absorption on the income gap of different industries in China. This paper first analyzes the scale of foreign investment absorption in different industries in China and introduces the changing trend of the scale of FDI absorption in manufacturing and service industries at different times. Moreover, the average salary level of different industries in China has also been analyzed to understand the changing trend of the income gap in different industries. Finally, through the method of empirical study, using China's 18 industries in 2005-2020 panel data as samples, this article explores the relationship between absorbed FDI and average wages in different Chinese industries. It demonstrates that the inflow of FDI can polarize the income level between industries. Some explanations have also been given in terms of the empirical results.