Entry Of FDI And Skill Premium

In the context of the new coronavirus and the sharp decline in global transnational direct investment,china’s use of foreign investment in 2020 will grow against the trend,making it the world’s largest foreign inflow country.The "Foreign Investment Law of the People’s Republic of China”,which was promulgated and implemented as early as the beginning of 2020,has made new regulations on the principles of competition neutrality,national treatment,intellectual property protection,and the negative list system for foreign investment access.This has greatly improved china’s business environment,enhanced the attractiveness of market,and helped to promote the inflow of more high-quality foreign capital into china.With the influx of large amounts of foreign capital,the relative wages of skilled labor in china have been greatly improved.Lei Qinli and Wang Yang(2017)estimated the skill premium in china from 1990 to 2014 and found that china’s skills premium showed a trend of rising first and then falling.It reached a peak of 1.927 in 2008,and has since fluctuated slightly around 1.8.In the context of china’s "dual increase”in the level of foreign investment opening up and the level of skill premiums,what impact will the entry of foreign capital have on skill premiums?What is the impact mechanism?This paper uses the method of PSM-DID and uses C hina industrial enterprise database to identify the causal effect of FDI on enterprise skill premiums.The study found that the entry of foreign capital significantly increased the skill premium of industrial enterprises,of which the treatment group increases by about 10%compared with the control group.This conclusion still holds with a variety of robustness tests,such as replacement of explained variables,replacement of samples,and replacement of estimation methods.And there is also a hysteresis effect,that the promotion effect of FDI in the current period is not obvious,however,it turns to be significant and gradually strengthens since then.Secondly,considering the proportion of FDI,the motivation of FDI,the size of the enterprise,the enterprise ownership and the regional characteristics,a heterogeneous analysis is performed and different results are derived.Specifically,the higher the proportion of FDI,the more the skill premium can be raised by foreign investment;foreign investment motivated by market seeking has a significant increase in the skill premium,while foreign investment motivated by exports has a negative but not significant impact on the skill premium;the smaller the size of the company,the more the skill premium can be raised by foreign investment;the higher the level of protection of intellectual property rights and the higher the degree of industrial agglomeration,the more the skill premium can be raised by foreign investment.Further mechanism analysis shows that foreign investment is mainly through increasing the outsourcing of productive services of enterprises,improving the level of enterprise servicing,increasing enterprise innovation activities,and then increasing the skill premium.First,it generally shows that the entry of foreign capital promotes the degree of specialization of enterprises,thereby increasing the skill premium;and when considering the heterogeneity of the division of labor,the entry of foreign capital mainly increases the skill premium by increasing the outsourcing of productive services by the enterprise,and reduces skill premiums by reducing direct material outsourcing.Second,based on the perspective of servitization,FDI has an impact on the skill premium by promoting the level of the servitization of Enterprises’ output and input.Third,based on the perspective of innovation,the entry of foreign capital has increased corporate innovation activities,including corporate innovation input and innovation output,thereby increasing the skill premium.Finally,based on theoretical analysis and empirical research conclusions,this article has obtained policy recommendations to reduce the skill premium,including strengthening the protection of intellectual property rights;enhancing the learning effect brought by the entry of foreign capital and the enterprise’s absorption and innovation effect on technology,and expanding the learning of workers On the benefit side,improve the skill level of low-skilled labor and realize its conversion to high-skilled labor,thereby increasing the supply of high-skilled labor and narrowing the skilled wage gap.