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Foreign Direct Investment and Wage Inequality: Evidence from China

Author

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  • Chen, Zhihong
  • Ge, Ying
  • Lai, Huiwen

Abstract

Summary This study provides micro-level evidence on the close link between foreign participation and wage inequality. We investigate the wage premium and the wage spillover effect of foreign-invested enterprises in the Chinese manufacturing sector. The results indicate a significant foreign premium in both wage and non-wage compensation. The presence of foreign and Hong Kong, Macao and Taiwan (HMT) investment results in a significantly negative spillover in terms the wage level in domestic firms, and discourages wage growth in such firms. Overall, the evidence suggests that exposure to foreign investment increases inter-enterprise wage inequality.

Suggested Citation

  • Chen, Zhihong & Ge, Ying & Lai, Huiwen, 2011. "Foreign Direct Investment and Wage Inequality: Evidence from China," World Development, Elsevier, vol. 39(8), pages 1322-1332, August.
    • Handle: RePEc:eee:wdevel:v:39:y:2011:i:8:p:1322-1332
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