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

  • Galina Hale
  • Cheryl Long

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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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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