Abstract: The analysis based on the dual labor market model indicates that the impact of FDI on the urban-rural income gap depends on the supply elasticity of high-skilled and low-skilled labor force as well as the influence of FDI on their demands respectively. Meanwhile, the empirical study with the panel data of China’s 29 provinces and cities from 1998 to 2010 also indicates that on the whole FDI is conductive to narrow the urban-rural income gap, especially in the east coastal region. In addition, FDI is able to increase the income of rural labors by improving the rural employment structure, thus narrows the urban-rural income gap. The inflow of FDI is also helpful to narrow the urban-rural income gap of the east coastal region which heavily relies on the development of processing trade through the trade effect; but on the other hand, FDI will enlarge the urban-rural income gap through the unbalanced human capital effects.

Key words: foreign direct investment；urban-rural income gap；influence