Does Foreign Direct Investment Catalyze Local Structural Transformation and Human Capital Accumulation ? Evidence from China
This paper examines the effect of foreign direct investment on local structural transformation and human capital accumulation in China, exploiting variations in foreign direct investment inflows across manufacturing sub-sectors caused by China’s fo...
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| Format: | Working Paper |
| Language: | English |
| Published: |
Washington, DC: World Bank
2022
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| Online Access: | http://documents.worldbank.org/curated/en/943921646335623928/Does-Foreign-Direct-Investment-Catalyze-Local-Structural-Transformation-and-Human-Capital-Accumulation-Evidence-from-China http://hdl.handle.net/10986/37104 |
| Summary: | This paper examines the effect of
foreign direct investment on local structural transformation
and human capital accumulation in China, exploiting
variations in foreign direct investment inflows across
manufacturing sub-sectors caused by China’s foreign direct
investment deregulation and initial sectoral composition
patterns across China’s cities and provinces. Using a panel
of city-level data from 1990 to 2005, the paper shows that
manufacturing foreign direct investment inflows greatly
accelerated city-level structural transformation and human
capital accumulation. By expanding access to the global
market, foreign direct investment created a huge pull factor
that drew excess labor away from farms into factories and
services. Foreign direct investment has promoted high school
and university enrollment by paying a higher wage premium
for skilled workers and pushing up the skill premium. The
positive effect on structural transformation is largely
driven by export-oriented foreign direct investment, while
market-seeking foreign direct investment has a much larger
effect on college enrollment. High-skill foreign direct
investment has a larger effect on college enrollment than
low-skill foreign direct investment. |
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