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Wage and Markdowns and FDI Liberalization

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  • Lu, Yi
  • Sugita, Yoichi
  • Zhu, Lianming

Abstract

This paper examines whether foreign direct investment (FDI) liberalization reduces firms' monopsony power in labor markets. We estimate firm-level wage markdown, wage over marginal revenue of labor, from China's production data and identify the causal effect of FDI liberalization on wage markdown, using China's regulation changes upon its accession to the World Trade Organization. Large and productive firms, state-owned firms, exporters, and foreign firms set narrower wage markdowns. FDI liberalization widened wage markdowns and decreased labor income share in value-added. These findings are contrast to classical monopsony theory based on concentration but consistent with modern theory based on search friction.

Suggested Citation

  • Lu, Yi & Sugita, Yoichi & Zhu, Lianming, 2019. "Wage and Markdowns and FDI Liberalization," Discussion paper series HIAS-E-83, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
  • Handle: RePEc:hit:hiasdp:hias-e-83
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    References listed on IDEAS

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    Cited by:

    1. Amodio, Francesco & de Roux, Nicolás, 2021. "Labor Market Power in Developing Countries: Evidence from Colombian Plants," IZA Discussion Papers 14390, Institute of Labor Economics (IZA).
    2. Dobbelaere, Sabien & Kiyota, Kozo, 2018. "Labor market imperfections, markups and productivity in multinationals and exporters," Labour Economics, Elsevier, vol. 53(C), pages 198-212.
    3. KONDO Keisuke, 2018. "Markup and Market Size: Evidence from Japan," Discussion papers 18017, Research Institute of Economy, Trade and Industry (RIETI).

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    Keywords

    Foreign direct investment; Monopsony; Wage; Search; Firm heterogeneity;
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