Authors Xiaobo Zhang & Kevin H. Zhang
demonstrate how two major factors of the globalization, foreign trade and
foreign direct investment, have been contributing for regional inequality within a developing country, with
the evidence from China. The paper has applied same production function in all
28 different provinces of China. “Gains of economic growth have not been evenly
distributed across regions. The inequality might have been caused by many
factors but foreign trade and foreign direct investment (FDI) also has a major
role to play in it,” reads the paper. “A striking feature is that coastal
provinces have generated more trade volume (over 86 percent of total) and
attracted far more FDI than inland provinces.”
Abstract of the paper:
Developing countries are increasingly
concerned about the effects of globalization on regional inequality. This
article develops an empirical method for decomposing the contributions of two
major driving forces of globalization, foreign trade and foreign direct
investment (FDI), on regional inequality and applies it to China. Even after
controlling for many other factors, globalization is still found to be an
important factor contributing to widening regional inequality. The article ends
by investigating the role of factor market segmentation in aggravating the
distributional effect of changing regional comparative advantages in the process
of globalization.
Note:
While wondering to connect this framework to
Nepal (Though Nepal is a under developed country), the role of foreign trade and
foreign direct investment in the economic growth has been limited due to our
supply-side constraints. The acute shortage of power for smooth operation of
manufacturing sector has always been a major bottleneck for the development of
Nepal. There is very rare chances of attracting FDI at a time while domestic
firms are shutting down their business due to lack of enough power supply in
their firms.