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Differences in returns to FDI between China's coast and interior: One country, two economies?

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  • Su, Jian
  • Jefferson, Gary H.
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    Abstract

    In principle, returns to factors of production within single economic systems should exhibit relatively uniform returns. Notwithstanding the fact that over the past 30 years China's economy has increasingly liberalized both internally and externally, it is widely understood that wages received by industrial workers in the coast and interior have widely diverged. However, less is known about how, between China's coast and interior, relative returns to domestic capital and foreign investment have fared, although we do know that the surge of foreign direct investment in China in recent decades has been overwhelmingly concentrated in the coastal region. This paper investigates comparative factor returns within China's industrial sector as measured by the marginal productivities of labor, domestic capital, and foreign capital. Using balanced and unbalanced samples of enterprise data during 1998–2004, we find significant differences between the returns to each of these factors. This paper explores the differences in estimates of factor returns that arise from the use of balanced versus unbalanced samples and least squares versus fixed effects estimators. We conclude that while returns to labor and domestic capital are higher in China's coastal economy, returns to foreign-owned capital are higher in the interior region. Indeed, the differences are indicative of those found in the literature that estimates cross-country comparisons between OECD and developing economies, suggesting that China's economy exhibits some of the differences found between the world's more and less developed economies.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Asian Economics.

    Volume (Year): 23 (2012)
    Issue (Month): 3 ()
    Pages: 259-269

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    Handle: RePEc:eee:asieco:v:23:y:2012:i:3:p:259-269

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    Web page: http://www.elsevier.com/locate/asieco

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    Keywords: Foreign direct investment; Factor returns; Regional differences; China;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Francesco Caselli, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(2), pages 535-568, 05.
    2. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," NBER Working Papers 7828, National Bureau of Economic Research, Inc.
    3. Gary H. Jefferson & Albert G. Z. Hu & Jian Su, 2006. "The Sources and Sustainability of China's Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 1-60.
    4. Robert S. Chirinko & Debdulal Mallick, 2008. "The Marginal Product of Capital: A Persistent International Puzzle," CESifo Working Paper Series 2399, CESifo Group Munich.
    5. Jefferson, Gary H. & Su, Jian, 2006. "Privatization and restructuring in China: Evidence from shareholding ownership, 1995-2001," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 146-166, March.
    6. Alwyn Young, 2000. "The Razor'S Edge: Distortions And Incremental Reform In The People'S Republic Of China," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(4), pages 1091-1135, November.
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    Cited by:
    1. Cécile BATISSE & Mary-Françoise RENARD & Nasser ARY TANIMOUNE, 2013. "Foreign Direct Investment across China: what should we learn from spatial dependences?," Working Papers 201312, CERDI.

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