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Geographical Location of Foreign Direct Investment and Wage Inequality in China

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  • Alyson C. Ma
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    Abstract

    This paper examines the relationships between distance and the transportation costs of international trade on the location-specific effects of foreign direct invest-ment and provincial per capita income in China. Applying the economic geography model proposed by Redding and Venables (2004), it traces the increasing wage inequality among the coastal and inland provinces by focusing on the distance of foreign-owned firms from access to international markets and to suppliers of intermediate inputs. First, a gravity-type equation is used to construct the 'market access' and 'supplier access' variables. Then, the effect of market and supplier access on provincial wage rates is estimated. The results indicate that distance does affect international trade and geography explains roughly one-third of the wage differential. Greater market access increases the provincial wage gap, while larger supplier access increases the wage difference in trade destined for the foreign market but decreases the wage difference in trade targeted for the domestic market. Similar findings also result from applying the estimations to two local firm types: state-owned enterprises and collective-owned enterprises. Copyright 2006 The Author Journal compilation 2006 Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal World Economy.

    Volume (Year): 29 (2006)
    Issue (Month): 8 (08)
    Pages: 1031-1055

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    Handle: RePEc:bla:worlde:v:29:y:2006:i:8:p:1031-1055

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    Cited by:
    1. Mah, Jai S., 2013. "Globalization, decentralization and income inequality: The case of China," Economic Modelling, Elsevier, Elsevier, vol. 31(C), pages 653-658.
    2. Frank Bickenbach & Wan-Hsin Liu & Peter Nunnenkamp, 2013. "Regional Concentration of FDI in Post-reform India: A District-level Analysis," Kiel Working Papers 1854, Kiel Institute for the World Economy.
    3. Alyson C. Ma & Ari Van Assche & Chang Hong, 2010. "Global Production Networks and the People’s Republic of China’s Processing Trade," Working Papers id:3041, eSocialSciences.
    4. Hering, Laura & Poncet, Sandra, 2009. "The impact of economic geography on wages: Disentangling the channels of influence," China Economic Review, Elsevier, Elsevier, vol. 20(1), pages 1-14, March.
    5. Maarten Bosker & Steven Brakman & Harry Garretsen & Marc Schramm, 2010. "Relaxing Hukou - Increased Labor Mobility and China’s Economic Geography," CESifo Working Paper Series 3271, CESifo Group Munich.
    6. Juárez Rivera Carmen Guadalupe & Ángeles Castro Gerardo, 2013. "Foreign direct investment in Mexico Determinants and its effect on income inequality," Contaduría y Administración:Revista Internacional, Accounting and Management: International Journal, Accounting and Management: International Journal, vol. 58(4), pages 201-222, octubre-d.
    7. Anwar, Sajid & Sun, Sizhong, 2012. "Trade liberalisation, market competition and wage inequality in China's manufacturing sector," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1268-1277.

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