1. Introduction
The 2030 Agenda for Sustainable Development issued by the United Nations sets out the goals of building sustainable cities and reducing inequality, and the document prominently states the need to eradicate poverty and integrate resources for the development of rural areas. Narrowing the urban–rural income gap (URIG) and promoting sustainable urban and rural development have received extensive attention from governments. With the continuous progress of urbanization, there are sustainable development imbalances between urban and rural areas in China [
1]. At present, scholars have been exploring the factors that can narrow the urban–rural gap from the perspective of sustainable development, believing that urban–rural migration [
2], urban–rural community planning [
3], central village construction [
4], and entrepreneurial urban–rural connections are important ways to promote sustainable urban–rural development [
5]. The Chinese Bureau of Statistics announced that the rate of increase in rural residents’ incomes has surpassed that of urban residents in recent times, and that the ratio of urban to rural incomes has decreased from 3.22 in 2005 to 2.45 in 2022. These data indicate a narrowing of the income gap in China and a notable advancement in the sustainable development of both urban and rural areas. However, the fact is that from an international perspective, the problem of unsustainable urban–rural development is still prominent in China, and the URIG is greater than the international average [
6]. The Chinese government has indicated that it wants to explore various channels for increasing the factor income of middle- and low-income people, as well as multiple channels for increasing the property income of urban and rural residents, so as to promote the sustainable development of China’s urban and rural incomes. Therefore, narrowing the URIG and cracking down on the urban–rural divide are of great practical significance in promoting the sustainable development of urban and rural areas in China.
Scholars have performed substantial research in an attempt to explain the elements that affect the URIG [
7,
8]. In recent years, the world economy has become gradually more integrated as countries’ participation in the global value chain (GVC) continues to increase [
9]. The GVC Development Report 2023 states that foreign inputs accounted for 28% of merchandise exports in 2022, a record high. As a core part of globalization, the economic and social effects of the GVC have received extensive attention from academics, and they play a crucial part in increasing productivity [
10], promoting economic growth, and raising the employment level of the workforce. However, scholars have overlooked the impact of the distribution of international trade benefits on China’s URIG following China’s greater participation in international trade. In fact, participation in international trade has created new requirements for workers’ skills, labor mobility, and work regions. These requirements have affected the income gap to some extent. In today’s era of economic globalization, the promotion of sustainable development in China’s urban and rural areas should be based on exploring internal factors while paying attention to changes in the external environment and exploring new paths for sustainable development in urban and rural areas from the perspective of globalization.
The existing literature on the GVC and income disparity falls into two main categories. Some scholars believe that GVC participation widens the income gap [
11]. Pahl et al. indicate that the productivity of firms participating in GVC production is higher than that of non-participating firms, and, therefore, workers’ wages are higher in firms participating in GVC production [
12]. Meanwhile, Han et al. argue that regions more affected by globalization have experienced greater changes in wage inequality than regions less affected by globalization [
13]. Aguiar de Medeiros and Trebat similarly conclude that GVC participation increases income disparities between countries [
14]. Bo Chen et al. also note that since trade liberalization, there has been a notable rise in wage disparity in China’s manufacturing sector between skilled and unskilled workers [
15]. Crinò believes that the offshore outsourcing of services affects the composition of labor demand, increasing the relative demand for medium- to high-skilled workers [
16]. Foster-Megregor et al. find that middle-skilled workers were the most affected in terms of shrinking labor demand [
17]. Ndubuisi and Owusu’s research find that high-income individuals benefit more from participating in the GVC [
18]. Rural labor has weaker profit opportunities in participating in the GVC than urban labor due to a lack of corresponding skills [
19]. Wang et al. also point out that an increase in a firm’s GVC position as well as upgrading to an upstream sector exacerbates inequality in skilled wage opportunities [
20]. In addition, there are other scholarly studies that take the opposite view. Gonzalez et al. point out that low-technology-intensive outsourcing is associated with narrowing the income gap, while high-technology-intensive outsourcing is associated with widening the income gap, but GVC participation narrows the income gap because low-technology-intensive outsourcing is overall more frequent [
21,
22]. Cai et al. argue that the effect of GVC participation in reducing income disparity by increasing the share of labor is stronger than the effect of heterogeneous labor in widening the wage gap, thus exhibiting a negative impact on domestic income inequality [
23]. Lin and Rong find that countries’ participation in the GVC reduces domestic income disparities and that this relationship is independent of the types of products exported as well as the level of development of the exporting country [
24]. Zheng and Wang also believe that trade attracts foreign investment to promote economic development and narrow income gaps [
25]. Cerdeiro and Komaromi’s research suggests that trade improves people’s living standards in the long run and benefits those at the lower end of the income distribution more due to trade integration [
26]. Wang et al. also pointed out that when trade increases the per capita income of urban and rural areas, its impact on rural areas is more pronounced, thereby narrowing the URIG [
27].
Based on the above literature, it is found that there are few existing studies on the relationship between the GVC and the URIG, and more research is focused on the relationship between the GVC and the income gap. This article aims to address some of the issues in existing research. First, existing literature explores the causal relationship between the GVC and the income gap from an economic perspective. However, there is insufficient discussion on sustainable development between urban and rural areas, and there is little literature support. This article attempts to provide a reference for existing research fields from the perspective of sustainable development between urban and rural areas. Second, existing articles have inconsistent conclusions on GVC and URIG, mainly due to different research samples and regions. In addition, due to different scholars using different econometric methods for the same problem, there are also differences in regression results. Third, the existing literature has not explored the impact of GVC on URIG from the perspective of employment structure. New moderating variables can help address this issue from the perspective of labor employment structure. Therefore, based on China’s current development, we mainly address the following issues: Will China’s participation in the GVC expand or shrink the URIG? What is the mechanism by which GVC participation affects the URIG? Is there a regional difference in the impact of GVC participation on the URIG? Accurately answering these questions has theoretical and practical significance for reducing China’s URIG and achieving sustainable development goals in the context of globalization.
In terms of research methodology, this article adopts a two-way fixed effects model and empirically tests the impact of GVC participation on China’s URIG using provincial data from 2005 to 2014. The two-way fixed effects model is a form of a fixed effects model that is used for the linear regression of panel data. The appearance of this model somewhat makes up for ordinary least squares models’ disregard of potential individual or temporal differences [
28]. Within the fixed effects model are three types of models: individual, temporal, and two-way fixed effects. The individual fixed effects model, by incorporating individual fixed effects, can control individual characteristics that do not change over time, alleviate the problem of missing variables that vary with individuals, and aid in the accurate assessment of causal links. Likewise, temporal fixed effects are included in the temporal fixed effects model, which aids in controlling temporal trends and can address the issue of missing variables that change over time but not with individuals. Based on this, the two-way fixed effects model takes into account both temporal and individual fixed effects. It is frequently employed to handle conditions where there are individual- and time-specific influences in panel data [
29,
30], and researchers can make more accurate results by using this model. For example, Li’s research, Shi and Jiang’s research, and others all used a two-way fixed effects model to study the impact of globalization on income inequality [
31,
32].
Based on the studies outlined above, this paper may have the following contributions: First, in terms of research perspective, compared with the existing literature that focuses on income inequality in the international and inter-provincial context, this study investigates how GVC participation affects the URIG. The analysis from an urban–rural perspective expands, to a certain extent, the methodology for promoting sustainable development in urban and rural areas. Second, in terms of research mechanism, this study analyzes the mediating effect of employment structure on the relationship between GVC participation and the URIG and further explores the moderating effects of factor endowment structure and industrial structure upgrading, which helps to enrich the research on the influence of the GVC in the URIG. Third, in terms of research indicators, this paper utilizes the 2005–2014 China Customs Database to measure the GVC participation of Chinese provinces and further investigates the differential impact of GVC participation on the URIG in different regions, which is a useful supplement to existing research.
The structure of this study is as follows.
Section 2 introduces the theoretical mechanisms of the GVC, employment structure, and the URIG and proposes hypotheses.
Section 3 introduces the main variables and the data used, as well as the empirical model.
Section 4 summarizes the results from regression analysis, including benchmark regression, robustness test, heterogeneity test, and mechanism test, and discusses the regression results.
Section 5 draws conclusions and suggestions.
2. Theoretical Background and Hypothesis Development
In the context of sustainable development, many studies have shown that with the deepening of economic globalization, trade patterns have changed, and urban and rural development has also been affected accordingly. The influence of GVC participation on URIG can be broadly classified into the following categories. First, the participation of enterprises in the GVC increases productivity, enabling more value to be created per unit of input, leading to enterprise scale-up and urban sector economic growth [
33]. Basic economic theory suggests that workers should typically receive compensation based on their marginal products. As a result, increasing enterprise productivity can result in higher demand and market share, and the corresponding rise in enterprise profits can create jobs, raise worker welfare, and raise income levels for both urban and rural populations [
34,
35]. However, the increased income from participation in the GVC cannot be equally distributed among the labor force, thus creating an impact on income inequality. There are considerable distinctions in the participation of urban and rural labor forces in GVC production, as well as differences in income levels, and globalization poses challenges to the equal sustainable development of urban and rural areas [
36]. Second, the increase in employment opportunities brought about by GVC participation causes rural labor to move to cities and increases their non-farm income [
37]. The complete free movement of labor between regions can narrow the URIG and enhance urban–rural sustainability. In fact, China’s urban–rural dual economic structure is prominent, and the degree of regional integration is not high, so when the rural labor force flows to the cities, there are structural contradictions, and the effect of rural income growth is not good [
38,
39]. Meanwhile, the rural labor force mainly flows to the industrial and service sectors with lower technology level, and this flow sacrifices the modernization process of rural areas, which further widens the URIG [
40]. In addition, due to the insufficient education and skill level of rural labor, agricultural transfer labor has become the main component of low-skilled labor and is generally at a disadvantage in the job market, with its income growth rate lower than that of urban labor [
41]. Enterprises participating in the GVC often reduce costs by using advanced technology to replace low-skilled labor and lowering wage levels in response to market competition. Due to the relatively low skill level and strong substitutability of rural labor, they may face the risk of unemployment and wage decline, which will have adverse effects on the sustainable development of urban and rural areas.
China actively integrates into the GVC and promotes significant growth in employment scale. Furthermore, it has been found that the increase in GVC participation has also had a significant impact on employment structure [
42], mainly including the following two paths: First, the factor endowment structure. On one hand, there are differences in factor endowments when countries take part in the division of labor in the GVC. Developed countries move labor-intensive industries to developing countries in accordance with their comparative advantages in order to obtain labor cost advantages. Due to a certain gap in technological level between developing countries and developed countries, the portion of the value chain that they undertake still belongs to high-tech production links, which increases the relative demand for high-skilled labor in developing countries and affects the employment structure [
43]. On the other hand, the optimization of the factor endowment structure enhances the competitive advantage of enterprises in participating in the GVC, which leads to a more efficient allocation of resources among enterprises and encourages them to transform into capital-intensive enterprises [
44,
45]. In this process, the reallocation of capital leads to labor mobility, with higher-skilled labor flowing to capital-intensive enterprises, which increases the demand for high-skilled labor and changes the employment structure [
46]. The second is the upgrading of industrial structure. On one hand, the participation of enterprises in the GVC leads to more intense market competition. In order to occupy a favorable position in international competition, it is necessary to continuously upgrade product quality and production technology and improve enterprise productivity [
47]. As there is a correlation between the productivity of enterprises participating in the GVC and the size of the highly skilled workforce, there is an employment substitution effect, leading to an increase in the proportion of highly skilled labor in enterprises [
48]. In addition, the division of labor and cooperation among countries in the GVC is beneficial for reducing production costs, expanding market size, and improving profitability [
49].With the expansion of production scale and further upgrading of industrial structure, the demand for high-skilled labor by enterprises participating in the GVC will also further expand. On the other hand, the production and processing activities in the GVC contain a large amount of knowledge and skill combinations. Utilizing the “learning by doing” effect to learn advanced technologies from developed countries can optimize industrial structure and generate technological progress effects [
50]. Due to the superior ability of high-skilled labor to match technological progress compared to low-skilled labor [
51], the demand for high-skilled labor by enterprises has increased, thereby optimizing the domestic employment structure [
52].
While GVC participation affects the structure of employment, it also leads to changes in the corresponding wage shares. According to the Heckscher–Ohlin model and the Stolper–Samuelson theorem, the price of a factor of production grows if it is used intensively in the production of a product; thus, GVC participation may increase the skill premium across the entire economy [
53]. Since urban residents tend to have higher skill levels than rural residents, they are able to earn higher incomes in enterprises participating in the GVC [
54], whereas rural laborers may suffer from unstable employment and slow wage growth, leading to a widening of the URIG [
55].
Based on the analysis in the previous text, this article proposes the following hypotheses:
Hypothesis 1: GVC participation widens the URIG.
Hypothesis 2: Employment structure plays a mediating role in the impact of GVC participation on the URIG.
Hypothesis 3: Factor endowment structure and industrial structure upgrading can strengthen the optimizing effect of GVC participation on employment structure.
In
Figure 1, the theoretical framework is displayed.
5. Conclusions and Implications of this Study
This research aims to investigate the relationship between GVC participation and the URIG in China, with the goal of increasing GVC participation, reducing the URIG, and advancing sustainable urban–rural development. Through theoretical analysis, we find that higher levels of GVC participation lead to an increase in overall income, but in order to improve international competitiveness, problems such as skill premiums and the substitution of unskilled labor tend to occur, thus widening the URIG. Then, this paper utilizes panel data from 30 provinces in China from 2005 to 2014 to explore the impact of GVC participation on China’s URIG. This paper found the following conclusions: (1) The increase in GVC participation widens the URIG. The widening effect remains robust after robustness tests. (2) The contribution of GVC to the expansion of the URIG varies by location. In the eastern region, GVC participation has a more dramatic effect on the URIG than it does in the central and western regions. (3) The employment structure plays a partial mediating role in the process of GVC participation in widening the URIG. Factor endowment structure and industrial structure upgrading have a prominent positive moderating effect on the role of GVC participation in optimizing the employment structure, which can widen the URIG even further. The findings of this article can theoretically enrich research on the relationship between GVC participation and the URIG, as well as have significant practical implications for reducing China’s URIG, optimizing employment structure, and achieving sustainable development goals in the context of globalization. Based on the above findings, the government should attach great importance to the income distribution effect of GVC participation, and some insights and recommendations are presented here.
First, actively participate in the GVC and coordinate rational development both domestically and internationally. The government should establish a good business environment and industrial base, utilize production factors in which it has a relative advantage, undertake the transfer of industries from developed regions and even from abroad, attract a large number of surplus rural laborers, and raise the income level of farmers. At the same time, it should strengthen the in-depth processing of agricultural products, develop modern agriculture, promote trade in agricultural products, and push specialty agricultural products to the world market. It should deepen the participation of rural residents in the GVC, optimize income distribution patterns, and better promote the sustainable development of urban and rural areas in the context of globalization. Governments can also encourage trade liberalization by implementing policies aimed at lowering tariff and non-tariff trade barriers. This would enable businesses to participate more actively in international competition, integrate into the GVC, lower transaction costs, and boost productivity. This allows for the attraction of greater foreign direct investment, which boosts firm profitability and contributes to increased labor income levels.
Second, encourage the transformation and upgrading of urban and rural industries, and optimize the employment structure. Businesses should consistently raise their R&D expenditures, strengthen their capacity for autonomous innovation, concentrate on assimilating cutting-edge technologies from other countries in the GVC, improve trade conditions, increase the added value of export goods, and continuously enhance China’s position in the GVC. In addition, it is necessary to enhance the level of social human capital, foster the development of education, improve the education level and conditions in rural areas, enable rural labor to participate more in high-paying employment, optimize employment structure, and effectively narrow the URIG.
Third, improve the level of opening up in the central and western regions, and leverage regional advantages. There are differences in the level of participation in the GVC among different regions, and it is necessary to deepen the regional division of labor and cooperation to achieve rational allocation of resource elements.. At the same time, we should orderly promote the transfer of industries to the central and western regions, deepen their participation in value chain production, actively engage in international trade, explore trade models suitable for the development of the central and western regions, increase employment opportunities, and promote sustainable development.