Trade, foreign investment and China’s wage inequality

Type Working Paper - Department of Economics, Warrington College of Business, University of Florida
Title Trade, foreign investment and China’s wage inequality
Author(s)
Publication (Day/Month/Year) 2003
URL http://www.ceibs.edu/faculty/xubin/China03.pdf
Abstract
China experienced a sharp increase in wage inequality between unskilled and
skilled workers in the late 1990s. Using a sample of 1,500 firms in five cities of China
for 1998-2000, we estimate the role of foreign trade and investment in determining
China’s wage inequality. Our estimation uses a translog wage-share equation derived
from the cost function. We find that exporting had a negative direct effect on wage
inequality, but a positive indirect effect by inducing firms to spend on skill-biased
technologies. While foreign firms as a whole had no distinctive effect on wage inequality,
a sharp difference exists between majority and minority foreign-owned firms.
We find evidence that majority foreign-owned firms adopted skill-biased technologies
while minority foreign-owned firms adopted unskilled-biased technologies.

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