Foreign direct investment, intellectual property rights, and wage inequality in China

This article incorporates foreign direct investment (FDI) and product diffe rentiation in a general equilibrium trade model. The analysis shows that fr eer trade and FDI will upgrade China's technology, improve its skills of la bor, and increase the competitiveness of local firms in the international m arket. At the same time, the relative wage of skilled labor to unskilled la bor will rise. The size of this rise will be affected by the degree of prot ection for intellectual property rights. These theoretical results are cons istent with empirical evidence. The analysis provides insights in coordinat ing policies on FDI, labor market reform, and intellectual property rights protection. (C) 2001 Elsevier Science Inc. All rights reserved.