Trade, Foreign Direct Investment and Wage Inequality in China: A Heterogeneous Firms Approach

Abstract

We apply insights from the heterogeneous firms' literature to an empirical investigation of wage inequality in China, focusing on the potential influences of foreign direct investment (FDI) and trade. Using firm-level data, we examine intra-sectoral wage inequality in a major industrial region with firms identified according to five firm ownership types and three exporter status types. We find large ownership-type wage premiums separate from other observable influences on wages, including a firm's exporter status. Our results indicate that ownership type matters more than exporter status as a determinant in explaining intra-sectoral wage inequality in China's Yangtze River Delta (YRD). We also find evidence of asymmetric wage effects of firm type by exporter status and by other wage determinants.