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Participation in globalization and out of poverty: The opportunity provided by foreign investments

Author

Listed:
  • Li, Zhiyuan
  • Lin, Yichun
  • Wan, Guanghua
  • Wu, Ruochen

Abstract

When labor is released from agriculture, he may seek employment in manufacturing and earn a potentially higher income. This transition, however, will not occur without manufacturing demand for excessive agricultural labor. This paper examines the role of foreign direct investments in facilitating such transition. We develop a theoretical model to show that, capital (and technology embedded) provided by foreign investments is essential for released agricultural labor to be absorbed by manufacturing in developing countries. To empirically capture the causal impacts of foreign investments on manufacturing employment of transiting rural labor in China, we use shocks of natural disasters to agricultural production as instruments for the supply of rural labor, and a “leave-out-push-pull” technique to develop instruments for foreign investments. Our findings suggest that foreign investments have significant and crucial impacts on manufacturing employment of transiting rural labor, providing opportunities for them to participate in global production and rise above poverty.

Suggested Citation

  • Li, Zhiyuan & Lin, Yichun & Wan, Guanghua & Wu, Ruochen, 2025. "Participation in globalization and out of poverty: The opportunity provided by foreign investments," China Economic Review, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:chieco:v:91:y:2025:i:c:s1043951x25000306
    DOI: 10.1016/j.chieco.2025.102372
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    More about this item

    Keywords

    Foreign investment; Manufacturing employment; Rural poverty; Globalization;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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