Abstract:
The purpose of this study is to examine the impact of trade openness and foreign direct investment (FDI) on wages in China using a panel data set of 27 manufacturing sectors over the period of 2001 to 2016. The effects are separated into three groups: total industries, capital-intensive industries and labor-intensive industries.
First, by comparing the determinants of three groups of industries, it shows that the impact of trade openness on wages only significant and positive in labor-intensive industries while the impact of FDI on wages is significantly positive in both capital-intensive industries and labor-intensive industries. Second, in the case of total industries, trade openness and FDI are insignificant to wages. Labor productivity, research and development (R&D) expenditure, the proportion of skilled workers to total skilled and unskilled worker are significantly positive to wages. In contrast, the proportion of female workers to total employment and the proportion of state-owned enterprises to total enterprises are significantly negative to wages. Third, for capital-intensive industries, the impact of trade openness on wages is insignificant while the impact of FDI is significantly positive on wages. Moreover, labor productivity, R&D expenditure and the proportion of skilled workers to total skilled and unskilled workers are significantly positive to wages. Finally, for labor-intensive industries, the impact of trade openness and FDI are both significantly positive to wages. Furthermore, labor productivity, R&D expenditure and the proportion of skilled workers to total skilled and unskilled workers are significantly positive to wages. However, the proportion of female workers to total employment and the proportion of state-owned enterprises to total enterprises are significantly negative to wages.
Last but not least, the results imply that the benefits of trade and investment policies of China on industrial wages should be made more inclusive to all types of industries, either capital or labor-intensive industries.
