To upgrade or to relocate? Explaining heterogeneous responses of Chinese light manufacturing firms to rising labor costs

Fei Wang, Junjie Xia and Jiajun Xu

China Economic Review, 2020, vol. 60, issue C

Abstract: This paper studies the heterogeneous responses of Chinese light manufacturing firms to rising labor costs from the perspective of New Structural Economics. Using the first-hand pilot survey data, we find that rising labor costs have been the number one challenge facing firms, and that despite the dominant strategy of technological upgrading, there is a substantial difference in responses across different firms. In addition, we discover that industrial and firm-specific labor intensity are key determinants of the heterogeneous strategies across firms in response to rising labor costs. We conclude that intrinsically more labor-intensive industries and firms are more likely to choose relocation instead of upgrading as a strategy to cope with the rising labor costs.

Keywords: New structural economics; Flying geese; Light manufacturing; Rising labor costs; Technology upgrading (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:60:y:2020:i:c:s1043951x1930094x

DOI: 10.1016/j.chieco.2019.101333

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