Trade and Rural-Urban Income Inequality: Evidence from China

Using the provincial panel data from 1978 to 2007, this paper makes an empirical analysis of the relationship between international trade and rural-urban income inequality in China. The results show that international trade has a fundamental impact on rural-urban income inequality. For the whole country, the development of international trade from 1978 to 2007 enlarged the rural-urban income gap. During the three different periods (defined in section 3.3), the impact was also noticeable in terms of extent, direction and significance respectively at the national and regional levels. During the three periods, the relationship has an inverted "U" shape for China as a whole, central China and western China, but for eastern China the relationship has a "U" shape. At the same time, exports and imports have different influences on the rural-urban income gap in China, the influences were also different across regions; and the imports has had a more significant influence on these regions than exports has had.