TY - JOUR
T1 - The location decisions of foreign investors in china
T2 - Untangling the effect of wages using a control function approach
AU - Liu, Xuepeng
AU - Lovely, Mary E.
AU - Ondrich, Jan
PY - 2010/2
Y1 - 2010/2
N2 - There is almost no support for the proposition that capital is attracted to low wages from firm-level studies. We examine the location choices of 2,884 firms investing in China between 1993 and 1996 to offer two main contributions. First, we find that the location of labor-intensive activities is highly elastic to provincial wage differences. Generally, investors' wage sensitivity declines as the skill intensity of the industry increases. Second, we find that unobserved location-specific attributes exert a downward bias on estimated wage sensitivity. Using a control function approach, we estimate a downward bias of 50% to 90% in wage coefficients estimated with standard techniques.
AB - There is almost no support for the proposition that capital is attracted to low wages from firm-level studies. We examine the location choices of 2,884 firms investing in China between 1993 and 1996 to offer two main contributions. First, we find that the location of labor-intensive activities is highly elastic to provincial wage differences. Generally, investors' wage sensitivity declines as the skill intensity of the industry increases. Second, we find that unobserved location-specific attributes exert a downward bias on estimated wage sensitivity. Using a control function approach, we estimate a downward bias of 50% to 90% in wage coefficients estimated with standard techniques.
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U2 - 10.1162/rest.2009.11350
DO - 10.1162/rest.2009.11350
M3 - Article
AN - SCOPUS:77349117373
SN - 0034-6535
VL - 92
SP - 160
EP - 166
JO - Review of Economics and Statistics
JF - Review of Economics and Statistics
IS - 1
ER -