Wage and Markdowns and FDI Liberalization
Yi Lu (),
Yoichi Sugita and
No HIAS-E-83, Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University
This paper examines whether foreign direct investment (FDI) liberalization reduces firms' monopsony power in labor markets. We estimate firm-level wage markdown, wage over marginal revenue of labor, from China's production data and identify the causal effect of FDI liberalization on wage markdown, using China's regulation changes upon its accession to the World Trade Organization. Large and productive firms, state-owned firms, exporters, and foreign firms set narrower wage markdowns. FDI liberalization widened wage markdowns and decreased labor income share in value-added. These findings are contrast to classical monopsony theory based on concentration but consistent with modern theory based on search friction.
Keywords: Foreign direct investment; Monopsony; Wage; Search; Firm heterogeneity (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hiasdp:hias-e-83
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