FDI and the Urban-rural Income Gap in China: Theoretical Analysis and Empirical Test

China is one of the largest countries which absorb FDI.FDI promotes China's economic development, and also takes significant effect on urban-rural income gap in China.Based on theoretical analysis, this paper uses data from 1979 to 2009 to analyse the relationship between FDI and the urban-rural income gap through the introduction of industrial structure adjustment mechanism.Empirical studies have shown that the growth of FDI decreases the proportion of income of rural residents in the whole national income, but has significant positive effect on the growth of urban residents income.It verifies the theoretical analytical conclusion that FDI has expanded the possibility of urban-rural income gap.In the end, this paper proposes that we shoud guide the tendency of FDI in industrial investment, promote the unity of the job market and increase education and training investment to ease the negative impact of FDI on China's urban-rural income gap.