Labor quality and the location of foreign direct investment: Evidence from China

Abstract

In this paper I examine the effect of labor quality on the location of foreign direct investment (FDI) in China. I use recent data on Chinese provincial FDI by source economy and find that labor quality plays a significant and positive role in attracting FDI. This is in contrast to the empirical results in Cheng and Kwan (2000a, 2000b) [Cheng, L. K., & Kwan, Y. K. (2000a). What are the determinants of the location of foreign direct investment: The Chinese experience. Journal of International Economics, 51, 379–400; Cheng, L. K., & Kwan, Y. K. (2000b). The location of foreign direct investment in Chinese regions: Further analysis of labor quality. In T. Ito, & A. O. Krueger (Eds.), The role of foreign direct investment in East Asian economic development. Chicago and London: University of Chicago Press], which show no significant FDI effect of labor quality. Furthermore, the evidence in this paper indicates that the location of FDI from developed economies such as the United States and Japan is more sensitive to labor quality than FDI from Asian developing economies.