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

Author

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  • Galina Hale
  • Cheryl Long

Abstract

When similar patterns of expansion and contraction are observed across sectors, we call this a business cycle. Yet explaining the similarity and synchronization of these cycles across industries remains a puzzle. Whereas output growth across industries is highly correlated, identifiable shocks, like shocks to productivity, are far less correlated. While previous work has examined complementarities in production, we propose that sectors make similar input decisions because of complementarities in information acquisition. Because information about driving forces has a high fixed cost of production and a low marginal cost of replication, it can be more efficient for firms to share the cost of discovering common shocks than to invest in uncovering detailed sectoral information. Firms basing their decisions on this common information make highly correlated production choices. This mechanism amplifies the effects of common shocks, relative to sectoral shocks.

Suggested Citation

  • Galina Hale & Cheryl Long, 2008. "Did Foreign Direct Investment Put an Upward Pressure on Wages in China?," Working Paper Series 2006-25, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2006-25
    DOI: 10.24148/wp2006-25
    Note: Original paper published 8/1/2006, under original title- FDI spillovers and firm ownership in China: labor markets and backward linkages
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Chaohong Zhou, 2010. "Toward an institutional ecology of establishment of foreign firms in the Chinese construction industry," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 8(2), pages 167-184.
    2. repec:wyi:journl:002154 is not listed on IDEAS
    3. Yuyuan Wen, 2014. "The spillover effect of FDI and its impact on productivity in high economic output regions: A comparative analysis of the Yangtze River Delta and the Pearl River Delta, China," Papers in Regional Science, Wiley Blackwell, vol. 93(2), pages 341-365, June.
    4. Glawe, Linda & Wagner, Helmut, 2020. "China in the middle-income trap?," China Economic Review, Elsevier, vol. 60(C).
    5. Ouyang, Puman & Fu, Shihe, 2012. "Economic growth, local industrial development and inter-regional spillovers from foreign direct investment: Evidence from China," China Economic Review, Elsevier, vol. 23(2), pages 445-460.
    6. Nicole Madariaga & Sandra Poncet, 2007. "FDI in Chinese Cities: Spillovers and Impact on Growth," The World Economy, Wiley Blackwell, vol. 30(5), pages 837-862, May.
    7. Dinga, Marián & Münich, Daniel, 2010. "The impact of territorially concentrated FDI on local labor markets: Evidence from the Czech Republic," Labour Economics, Elsevier, vol. 17(2), pages 354-367, April.

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    Keywords

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    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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