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Did Foreign Direct Investment Put an Upward Pressure on Wages in China?

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  • Galina Hale
  • Cheryl Long

Abstract

This paper studies the extent to which foreign direct investment (FDI) could have contributed to recent increase in wages in China. Using a World Bank survey data set of 1,500 Chinese enterprises conducted in 2001, the paper finds that the presence of FDI in the same industry and region has an indirect effect on wages of skilled workers in private firms, while it does not appear to affect wages of ordinary workers or of any workers in state-owned enterprises (SOEs). It further finds that observed quality of engineers in both SOEs and domestic private firms declines in the presence of FDI in the same industry and region, while quality of managers improves in domestic private firms. The paper discusses potential reasons for such discrepancy in the FDI effects on private and state firms’ labor practices. These findings highlight the relevance of labor market institutions in determining FDI spillovers.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Economic Review.

Volume (Year): 59 (2011)
Issue (Month): 3 (August)
Pages: 404-430

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Handle: RePEc:pal:imfecr:v:59:y:2011:i:3:p:404-430

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Cited by:
  1. Risheng Mao & John Whalley, 2011. "Ownership Characteristics, Real Exchange Rate Movements and Labor Market Adjustment in China," NBER Working Papers 17565, National Bureau of Economic Research, Inc.
  2. Farole, Thomas & Winkler, Deborah, 2012. "Foreign firm characteristics, absorptive capacity and the institutional framework : the role of mediating factors for FDI spillovers in low- and middle-income countries," Policy Research Working Paper Series 6265, The World Bank.
  3. Mayneris, Florian & Poncet, Sandra, 2013. "Chinese firms'entry to export markets : the role of foreign export spillovers," Policy Research Working Paper Series 6398, The World Bank.
  4. Theresa M. Greaney & Yao Li, 2013. "Trade, Foreign Direct Investment and Wage Inequality in China: A Heterogeneous Firms Approach," Working Papers 201306, University of Hawaii at Manoa, Department of Economics.
  5. Galina Hale, 2010. "Comment on "What Accounts for the Rising Sophistication of China's Exports?"," NBER Chapters, in: China's Growing Role in World Trade, pages 104-107 National Bureau of Economic Research, Inc.
  6. Henry, Peter Blair & Sasson, Diego, 2009. "Capital Market Integration and Wages," Research Papers 2019, Stanford University, Graduate School of Business.
  7. Muqun Li & Ian Coxhead, 2011. "Trade and Inequality with Limited Labor Mobility: Theory and Evidence from China," Review of Development Economics, Wiley Blackwell, vol. 15(1), pages 48-65, 02.
  8. Krammer, Sorin, 2010. "Do good institutions enhance the effect of technological spillovers on productivity? Comparative evidence from developed and transition economies," MPRA Paper 53985, University Library of Munich, Germany, revised 07 Feb 2014.
  9. Yakub Halabi, 2013. "Perpetuating the global division of labour: defensive free trade and development in the third world," Asia Pacific Trade and Investment Review, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 20(1), pages 91-120, June.
  10. Peter Henry & Diego Sasson, 2009. "Capital Market Integration and Wages," Discussion Papers 08-028, Stanford Institute for Economic Policy Research.

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