The Impacts of Import Penetration on Regional Income Inequality in China: A Global Value Chain Perspective

Abstract

Increasing and persistent regional income inequality contrasts strikingly with the world economy's outstanding performance, especially in China. Constructing direct import penetration and indirect intermediate import exposure indexes within a global value chain framework and evaluating regional disparities with nighttime light data, this analysis uncovers the effect of both direct and indirect import penetration on the regional income gap in China, and delves into potential mechanisms from economic development, industrial structure, and factor mobility. Our findings suggest that the positive effect of indirect import exposure of intermediate inputs lies in minimizing regional income disparities, while the effect of direct import exposure remains obscure. In addition, growing disparities in trade openness and fixed capital investment exacerbate regional inequality, in contrast to the positive role that government intervention plays in narrowing the income gap. These results are expected to hold for other countries at similar stages of development.

The Impacts of Globalization on Inequality in the Post-COVID-19 World: Evidence From China

“…Mixed findings at different spatial levels are reported in studies on international trade. Many studies based on provincial-level data show that trade increases inequality [e.g., ( 35 , 40 , 43 )]. However, Wei and Wu ( 44 ) reach the opposite conclusion using prefectural- and municipality-level data.…”

“…Based on prior empirical research [e.g., ( 37 , 43 )] we use the FDI and a combined value of exports and imports ( XIM ) as explanatory variables proxying for the effects of globalization on intra-provincial inequality. Both variables are expressed as a share of provincial gross regional product (GRP).…”

“…Another major component of globalization: international trade is reported by some as a major force behind the growing disparity between the inland and coastal regions [e.g., ( 40 , 41 )]. Furthermore, Zhang and Zhang ( 35 ), Gries and Redlin ( 42 ), and Wang and Chen ( 43 ) find that regional inequality in China increases with exposure to international trade. However, in a study on international trade and rural-urban inequality in Chinese prefectural-level cities, Wei and Wu ( 44 ) document that trade openness significantly reduces inequality.…”