FDI and labour share of home-country: empirical evidence from micro data of Chinese enterprises

Abstract

When an enterprise is operating globally, it will surely lead to the flow of production factors, and thus change the factor income distribution in the home country. This paper studies the influence of FDI on the labour share in enterprises’ home country under the background of continuous economic globalisation. Based on the theory of Heterogeneity of FDI Motivation, this paper first analyzes the influence mechanism of FDI on home country labour share. Then, with the micro data of Chinese enterprises, this paper adopts Mahalanobis distance matching and Difference-in-Differences (DID) estimation to have empirical test on the influence of FDI on the labour share in enterprises’ home country. The results show that, overall, enterprises’ FDI and labour share in the home country present a negative correlation. In terms of heterogeneity of FDI motivation, market-seeking FDI significantly decreases the labour share in the home country, while resources-seeking and technology-seeking FDI significantly increase the labour share in the home country. From the perspective of host country heterogeneity, FDI in developed countries significantly increases the labour share in the home country, while the FDI in developing countries inhibits the increase of labour share in the home country.