Abstract
Using a panel of 29 provinces over the years 1995–2001, we explore the large regional variation in industry wage differentials in China and examine the provincial characteristics that are consistent with greater inequality. We find that the effect of foreign direct investment (FDI) varies by province. One of the reasons that FDI can have differential effects is that the type of FDI (export vs. import-oriented) varies substantially across the provinces. Export-oriented FDI raises the wages of workers in industries that rely more on unskilled workers and lowers the wages of workers in industries that rely more on skilled workers, lowering the industry differential.
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