Department

Economics, Finance, & Quantitative Analysis

Document Type

Article

Publication Date

2-2010

Abstract

There is almost no support for the proposition that capital is attracted to low wages from firm-level studies. We examine the location choices of 2,884 firms investing in China between 1993 and 1996 to offer two main contributions. First, we find that the location of labor-intensive activities is highly elastic to provincial wage differences. Generally, investors' wage sensitivity declines as the skill intensity of the industry increases. Second, we find that unobserved location-specific attributes exert a downward bias on estimated wage sensitivity. Using a control function approach, we estimate a downward bias of 50% to 90% in wage coefficients estimated with standard techniques.

Journal

Review of Economics and Statistics

Journal ISSN

346535

Volume

92

Issue

1

First Page

160

Last Page

166

Digital Object Identifier (DOI)

10.1162/rest.2009.11350

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