Abstract
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.
| Original language | English (US) |
|---|---|
| Title of host publication | International Economic Integration and Domestic Performance |
| Publisher | World Scientific Publishing Co. Pte Ltd |
| Pages | 191-198 |
| Number of pages | 8 |
| ISBN (Electronic) | 9789813141094 |
| ISBN (Print) | 9789813141087 |
| DOIs | |
| State | Published - Feb 27 2017 |
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Business, Management and Accounting(all)
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Lin, X., Lovely, M. E., & Ondrich, J. (2017). The location decisions of foreign investors in China: Untangling the effect of wages using a control function approach. In International Economic Integration and Domestic Performance (pp. 191-198). World Scientific Publishing Co. Pte Ltd. https://doi.org/10.1142/9789813141094_0011