Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/145231 
Year of Publication: 
2016
Series/Report no.: 
IZA Discussion Papers No. 10097
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
China's government is promoting the shift towards a consumption-based economy since a few years. The explicit goal to significantly raise the percentage of wages in the national household income is integral part of the 12th Five-Year Plan (2011-15). The changes in the economic strategy are likely to affect the attractiveness of the country to foreign investors. In this paper, we raise the hypothesis that soaring wages negatively affect FDI inflows to China and alter the distribution of FDI over Chinese provinces. In addition, low-wage countries in the geographical surrounding might benefit from the changed direction of FDI inflows. By performing panel models with spatial effects for both Chinese provinces and developing ASEAN countries, regional dependencies are explicitly addressed. We provide strong and robust evidence that the wage increases change the distribution of FDI within China. In addition, we show that the changes in China's economic strategy improve the chances of its low-income neighbours to attract FDI.
Subjects: 
foreign direct investment
Chinese economic transformation
spatial correlation
JEL: 
F15
F21
F63
E22
Document Type: 
Working Paper

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