Globalization and inter-industry wage differentials in China

Abstract

This paper explores the relationship between globalization and inter-industry wage differentials in China by using a two-stage estimation approach. Taking advantage of a rich household survey dataset, this paper estimates the wage premium for each industry in the first stage conditional on individual worker and firm characteristics. Alternative measures of globalization are considered in the second stage: trade openness and capital openness. A disaggregation of trade into trade in final and intermediate goods shows that increases in import (export) shares of final goods reduce (increase) the wage premia significantly, whereas imports or exports of intermediate goods do not explain differences in industry wage premia. This finding is supported by stronger effects for final goods trade in coastal than noncoastal regions. Our results also show a positive relationship between capital openness and industrial wage premia, though this finding is less robust when potential endogeneity issues are allowed for.