This study investigates the effects of economic openness on the urban–rural income gap in China, with particular attention to the distinct roles played by trade openness and FDI. Using balanced panel data covering 31 provinces, municipalities, and a...
This study investigates the effects of economic openness on the urban–rural income gap in China, with particular attention to the distinct roles played by trade openness and FDI. Using balanced panel data covering 31 provinces, municipalities, and autonomous regions from 2000 to 2022, the analysis employs a two-way fixed effects model to control for both region-specific time-invariant characteristics and common macroeconomic shocks.
The urban–rural income ratio is adopted as the dependent variable to directly capture disparities between the two population groups. Trade openness is measured by the ratio of total imports and exports to regional GDP, while FDI is defined as the ratio of foreign direct investment inflows to regional GDP. A comprehensive set of control variables is included, encompassing government expenditure intensity, employment structure, capital stock per capita, technological intensity, and per capita GDP.
The empirical results indicate a clear divergence in the distributional effects of different forms of economic openness. Trade openness is found to have a statistically significant and robust negative effect on the urban–rural income gap, implying that expanded trade is associated with income convergence. This effect is likely mediated through labor-intensive industrial expansion, enhanced employment opportunities, and increased income growth for rural residents. In contrast, FDI exhibits a significant positive association with the income gap, suggesting that foreign investment has tended to exacerbate urban–rural inequality by disproportionately benefiting capital-intensive and skill-intensive sectors concentrated in urban areas.
Regional heterogeneity analysis further reveals that the inequality-reducing effect of trade openness is more pronounced in the central and western regions, while the inequality-expanding effect of FDI is strongest in the western region. These findings reflect differences in industrial structure, absorptive capacity, and the spatial concentration of foreign investment. Government expenditure plays a more prominent redistributive role in less developed regions, whereas within-region economic growth generally contributes to narrowing the urban–rural income gap.
Overall, this study demonstrates that economic openness is not distribution-neutral and that its income effects depend critically on the composition of openness and regional development conditions.