Lin, M; Wang, Y; Wu, S (2025) Centre for Inclusive Trade Policy, Working Paper 019
" } ["group_head_shared"]=> array(2) { ["meta_description"]=> string(0) "" ["toggle_markup"]=> array(0) { } } ["group_sitemap"]=> array(3) { ["sitemap_hide"]=> bool(false) ["change_frequency"]=> string(7) "monthly" ["priority"]=> string(3) "0.5" } ["group_search"]=> array(2) { ["search_hide"]=> bool(false) ["search_term"]=> string(0) "" } ["group_preload"]=> array(2) { ["prefetch_post"]=> string(0) "" ["preload_image"]=> bool(false) } ["layouts"]=> array(2) { [0]=> array(2) { ["acf_fc_layout"]=> string(11) "layout_text" ["clone"]=> array(11) { [""]=> NULL ["group_bespoke"]=> array(3) { ["style"]=> string(7) "default" ["column_num"]=> string(1) "1" ["width_2_column"]=> string(8) "split-50" } ["group_column_1"]=> array(2) { ["text"]=> string(1059) "This paper studies how liberalising outward foreign direct investments (FDI) affects manufacturers’ engagement in global production and their domestic workers’ labor market outcomes. Focusing on a liberalisation policy in 2001 by the government of Taiwan that allowed 122 electronic products to be produced in China, we estimate its effect on Taiwanese electronic manufacturers and their domestic workers. Employing a matched difference-in-differences strategy, we find that the manufacturers targeted by the policy were on average 14% more likely to invest in China relative to the non-targeted ones. Correspondingly, the domestic incumbent workers of the targeted manufacturers were on average more likely to change their jobs, stay employed for fewer years, and have lower wages in subsequent years relative to those employed by the non-targeted ones. The worker-level effects of the policy exhibited substantial heterogeneity across the initial wage distribution, with the top-decile workers benefiting and the other workers losing on average.
" ["align"]=> string(7) "align_l" } ["group_column_2"]=> array(2) { ["text"]=> string(0) "" ["align"]=> string(7) "align_l" } ["_copy"]=> NULL ["group_column_3"]=> array(2) { ["text"]=> string(0) "" ["align"]=> string(7) "align_l" } ["group_core"]=> array(8) { ["layout_label"]=> string(8) "Untitled" ["tog_progress"]=> bool(false) ["tog_header"]=> bool(true) ["tog_padding"]=> bool(false) ["tog_background"]=> bool(false) ["tog_restriction"]=> bool(false) ["grp_lifecycle"]=> array(2) { ["datetime_start"]=> string(0) "" ["datetime_end"]=> string(0) "" } ["grp_identity"]=> array(2) { ["id"]=> string(0) "" ["class"]=> string(0) "" } } ["group_header"]=> array(3) { ["title"]=> string(22) "CITP Working Paper 019" ["intro"]=> string(114) "This paper examines the effects of a government policy change that allowed Taiwanese electronic manufacturers to move their production to China. The study looks at how this policy, enacted in 2001, impacted both the Taiwanese companies themselves and their workers back in Taiwan. Understanding these effects is important because companies increasingly operate across borders, and it’s crucial to know how such international activities affect the home country. While much research has explored the impact of trade liberalisation (like reducing tariffs on imports), the consequences of making it easier for companies to invest and produce abroad (outward Foreign Direct Investment, or FDI) are less understood.
The researchers focused on a specific event when the government of Taiwan unexpectedly permitted the production of 122 high-tech electronic products in China. The timing of the policy, followed by a surprising election win of the pro-independence party in year 2000, makes it a great case to study the causal effects of FDI liberalization. This policy change created a natural experiment, allowing the researchers to compare companies that produced these newly allowed products (the “treatment” group) with other electronic manufacturers that were not affected by this particular liberalisation (the “control” group).
To analyze the impact on firms, the study used detailed production data for Taiwanese electronic manufacturers in Taiwan and China from 1998 to 2007. They compared the investment activities and performance of the treatment and control firms before and after the 2001 policy change. To make sure they were comparing similar companies, they used statistical techniques to match firms based on their characteristics before the policy.
The findings show that the policy significantly increased the likelihood of Taiwanese investments in China, particularly in the same type of products the firms were already making in Taiwan. This suggests that companies were moving their core production activities to China after the liberalisation. For companies that already had investments in China, the policy led to increased employment and wage bills in their Chinese affiliates. Moreover, the evidence suggests a slight reduction in employment and wage bills per worker in the parent companies in Taiwan.
To understand the impact on workers in Taiwan, the researchers used Taiwanese administrative dataset that matched employees to their employers from 2001 to 2007. They compared the job market experiences of incumbent workers who were employed by the treatment firms with those employed by the control firms.
The study found that, on average, the FDI liberalisation policy had a negative effect on the domestic workers of the treatment firms. Specifically, workers in these firms experienced higher rates of job transitions and fewer years of employment with their initial company after the policy. They also earned less in total wages over the period of 2001-2007 compared to workers in the control group.
However, the impact was not the same for all workers. The study revealed a clear distinction based on initial wage levels. Workers from the treatment firms who were in the top 10% of the wage distribution in 2001 actually benefited from the policy, experiencing more job security and higher earnings relative to the workers from the control firms. These were likely higher-skilled workers in managerial or research positions. In contrast, workers in the middle and lower wage percentiles faced negative consequences, including more job changes, fewer years at their initial firm, and lower cumulative wages. The negative impact on employment was particularly noticeable in the number of years workers stayed with their initial employer.
The researchers also explored whether the impact differed by gender, finding that female workers, who were often overrepresented in lower wage brackets, experienced greater negative effects.
In conclusion, this study provides strong evidence that while liberalising outward FDI can lead to increased global production for firms, it can also have significant and uneven effects on domestic workers. The policy in Taiwan led to a redistribution of benefits, with higher-skilled, higher-paid workers potentially gaining from the increased profitability of their firms, while lower-skilled, lower-paid workers faced greater job insecurity and wage losses.
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