TY - CHAP
T1 - The location decisions of foreign investors in China
T2 - Untangling the effect of wages using a control function approach
AU - Lin, Xuepeng
AU - Lovely, Mary E.
AU - Ondrich, Jan
N1 - Publisher Copyright:
© 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology. All rights reserved.
Copyright:
Copyright 2019 Elsevier B.V., All rights reserved.
PY - 2017/2/27
Y1 - 2017/2/27
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 - 10.1142/9789813141094_0011
DO - 10.1142/9789813141094_0011
M3 - Chapter
AN - SCOPUS:85059555147
SN - 9789813141087
SP - 191
EP - 198
BT - International Economic Integration and Domestic Performance
PB - World Scientific Publishing Co. Pte Ltd
ER -