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Foreign Direct Investment and Urban Inequality: Evidence from Chinese Cities

Author

Listed:
  • Johansson, Anders C.

    (Stockholm China Economic Research Institute)

  • Liu, Dan

    (Shanghai University of Finance and Economics)

  • Zhen, Maosheng

    (Shanghai University of Finance and Economics)

Abstract

In this paper we examine the impact of foreign direct investment (FDI) on local urban wage inequality in China. We find that the within-city college premium is larger for cities characterized by a higher degree of FDI penetration. We then try to establish the causal impact of FDI penetration on city inequality using historical Christian influence as an instrumental variable. In addition, firm-level evidence shows that FDI has amplified both between-firm inequality and within-firm inequality. FDI firms do not only hire relatively more high-skilled workers but also provide relatively higher wages to high-skilled workers compared to domestic firms. Finally, an individual-level analysis shows that FDI has a spillover effect on low-skilled workers, but the magnitude of that effect is much smaller than the effect on high-skilled workers.

Suggested Citation

  • Johansson, Anders C. & Liu, Dan & Zhen, Maosheng, 2017. "Foreign Direct Investment and Urban Inequality: Evidence from Chinese Cities," Stockholm School of Economics Asia Working Paper Series 2017-45, Stockholm School of Economics, Stockholm China Economic Research Institute.
    • Handle: RePEc:hhs:hascer:2017-045
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    More about this item

    Keywords

    foreign direct investment; skill premium; inequality; China;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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