Does foreign investment liberalisation enhance women's economic status? Micro‐evidence from urban China

• DOI: http://doi.org/10.1111/twec.12873
• Author: Linhui Yu,Junsen Zhang,Yanbing Wen
• Published date: 01 December 2019
• Date: 01 December 2019

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wileyonlinelibrary.com/journal/twec World Econ. 2019;42:3404–3429.

© 2019 John Wiley & Sons Ltd

DOI: 10.1111/twec.12873

SPECIAL ISSUE ARTICLE

Does foreign investment liberalisation enhance

women's economic status? Micro‐evidence from

urban China

LinhuiYu1

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JunsenZhang2

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YanbingWen3

1School of Economics,Zhejiang University, Hangzhou, China

2Department of Economics,Chinese University of Hong Kong, Hong Kong

3School of Economics,Zhejiang University of Finance and Economics, Hangzhou, China

Funding information

Zhejiang Provincial Science Foundation of China, Grant/Award Number: LY18G030004; National Natural Science

Foundation of China, Grant/Award Number: 71873120, 71672177 and 71703146

KEYWORDS

FDI liberalisation, gender earnings, women's economic status

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INTRODUCTION

Globalisation is widely considered as one of the most important driving forces of economic growth and

social change. Foreign direct investment (FDI), which is one of the most important benefits of economic

globalisation, plays a crucial role in the technology transfer, industrial restructuring and employment

in the host country (Amiti & Konings, 2007; Barry, Görg, & Strobl, 2005). Most FDIs are designed to

create new businesses in the host, which usually translates to job creation and higher wages (Amiti &

Davis, 2012). How FDI affects gender inequality in the labour market is of great interest to economic re-

searchers in modern society where women's rights and economic independence are widely emphasised.

The answers to this question are of particular interest to policymakers who regard elimination of gender

wage discrimination as a long‐term commitment of the government during economic globalisation.

Prior studies have examined various issues of whether and how globalisation (e.g. exposure to

international trade and inward FDI) affect labour market inequality. These issues include the follow-

ing: wage and employment inequality across regions, industries and firms with different ownership

(e.g. Anwar & Sun, 2012; Chen, Ge, & Lai, 2011; Feng, 2016; Figini & Görg, 2011; Han, Liu, &

Zhang, 2012) and gender wage inequality among different firms (e.g. Braunstein & Brenner, 2007;

Chen, Ge, Lai, & Wan, 2013; Juhn, Ujhelyi, & Villegas‐Sanchez, 2014; Zhang, Han, Liu, & Zhao,

2008).1 Despite enormous efforts made by previous scholars on the exploration of this particular

1 Most of these studies use data from China, the world's second largest recipient of FDI. Chen et al. (2013) provides a

comprehensive review of the literature on globalisation and female wages and gender gap in the context of China.

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research topic, our understanding of the above issues remains limited and less clear cut because ex-

isting empirical findings are far from conclusive and are even conflicting, probably due to the differ-

ent data and econometric methods employed. In contrast to most existing research that looks into the

effects of FDI liberalisation on gender inequality using macro or firm‐level micro‐data and from the

perspective of wage inequality within regions or industries, our research aims to examine this partic-

ular issue using household‐level micro‐data and from the perspective of wage inequality within

families.

Foreign investment affects female wages and economic status through several important channels.

The first is the extra job opportunities provided for women by foreign‐invested enterprises (FIEs) as

the result of large influxes of foreign capital into the host country (Ozler, 2000; Oostendorp, 2009). In

particular, export‐oriented FDI in developing countries may increase demand for low‐skilled female

workers, thereby driving up average female wages (Standing, 1999). Large inflows of FDI also make

it possible for skilled female workers to work in multinational companies, which usually pay higher

wages than local domestic firms (Busse & Spielmann, 2006). However, the presence of FDI may also

affect women's labour market participation decisions and induce a large number of women to switch

from unpaid household work to paid jobs, thereby resulting in a surplus of female workers and reduc-

tion in equilibrium price (Seguino & Grown, 2006).

The second channel is competitive pressure brought by FDI to domestic firms in the host.

Massive entry of FIEs intensifies the market competition for qualified (skilled or unskilled) workers

in the labour market, which may result in an increase in demand for female labour and reduction in

gender discrimination in employment and wages (Li, Wang, & Jiang, 2015; Standing, 1999).2 The

presence of FDI also helps reduce occupational gender segregation in developing countries, which

enables female workers to enter some manufacturing industries dominated traditionally by male

workers (Adler & Izraeli, 1996). As a result, gender inequality in wages and employment narrows,

thereby leading to improved social status and economic condition of women (Zhou, Zhang, & Song,

2013).

The third channel is technology spillovers in the host, especially the advanced technologies or

skills particularly beneficial to females rather than males, for example those related to management

communication and psychological cognition that women have natural advantages (Braunstein &

Brenner, 2007). However, multinational companies can also bring skill‐intensive technological ad-

vances to the host and lead to increased demand for skilled workers, which may widen the gender

wage gap if average skills of women are lower than of men (Zhu, Liu, & Li, 2012). The literature

has also mentioned several other channels through which FDI may affect female wages in the host

country, for example human capital investment and labour force participation (e.g. Chi & Li, 2008,

2014; a comprehensive review of literature on the causes of gender wage gaps is provided by Blau &

Kahn, 2017).

The main purpose of this study is to examine whether and how FDI liberalisation affect women's

economic status in the household in the context of China. China provides us with an ideal setting to

look into this for several reasons. First, China's globalisation process has accelerated considerably

since its accession to the WTO in 2001, including a substantial relaxation of regulation on FDI in

2002. Second, labour market participation of Chinese women is high compared with other countries,

especially developing ones. Third, gender discrimination was to some extent severe in some regions,

2 Based on the economics of discrimination (Becker, 1957), a cost of gender discrimination exists and a fully competitive

environment will reduce firms' gender discrimination and preference behaviours.