Minimum wage, foreign firm exit and export: Heterogeneity in investment motivation

Bing Lu, Xu Yang and Xinding Yu

Economic Analysis and Policy, 2025, vol. 87, issue C, 948-970

Abstract: Using data from Chinese industrial firms between 2000 and 2013, we explore the varied impact of minimum wage increases on the exit behavior and export performance of foreign-owned firms, focusing on three primary motivations: labor costs, market size, and industrial linkages. The results show that foreign-owned firms driven by labor costs are more likely to exit following a minimum wage hike, while those motivated by market size and industrial linkages are less likely to be affected. We also observe similar patterns in firm exports: rising minimum wages generally reduce foreign-owned firms’ exports, with the impact being more pronounced for firms with lower domestic market shares and weaker industrial linkages. This paper highlights that deep integration of foreign-owned firms into the domestic market and industrial chain can help mitigate the exit risks associated with rising labor costs.

Keywords: Minimum wage; Firm exit; Foreign-owned firms; Labor cost; Export ratio; Industrial chain (search for similar items in EconPapers)
JEL-codes: D21 E24 O38 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0313592625002280
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:87:y:2025:i:c:p:948-970

DOI: 10.1016/j.eap.2025.06.001

Access Statistics for this article

Economic Analysis and Policy is currently edited by Clevo Wilson

More articles in Economic Analysis and Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().