The location decisions of foreign investors in China: Untangling the effect of wages using a control function approach

Xuepeng Lin; Mary E. Lovely; Jan Ondrich

doi:10.1142/9789813141094_0011

The location decisions of foreign investors in China: Untangling the effect of wages using a control function approach

Xuepeng Lin, Mary E. Lovely, Jan Ondrich

Department of Economics

Research output: Chapter in Book/Report/Conference proceeding › Chapter

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	https://doi.org/10.1142/9789813141094_0011
State	Published - Feb 27 2017

ASJC Scopus subject areas

Economics, Econometrics and Finance(all)
Business, Management and Accounting(all)

Access to Document

10.1142/9789813141094_0011

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