Foreign Direct Investment and Urban Inequality: Evidence from Chinese Cities

Anders Johansson, Dan Liu () and Maosheng Zhen
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Dan Liu: Shanghai University of Finance and Economics
Maosheng Zhen: Shanghai University of Finance and Economics

No 2017-45, Stockholm School of Economics Asia Working Paper Series from Stockholm School of Economics, Stockholm China Economic Research Institute

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.

Keywords: foreign direct investment; skill premium; inequality; China (search for similar items in EconPapers)
JEL-codes: F21 I30 R11 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2017-11-15
New Economics Papers: this item is included in nep-cna, nep-int, nep-lma, nep-tra and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hascer:2017-045

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