Foreign direct investment and intergenerational occupational mobility: Evidence from China

This paper analyses the impact of foreign direct investment (FDI) liberalization on intergenerational occupational mobility in China by exploiting exogenous variations in FDI liberalization induced by regulatory relaxation. Using a Shift-share variable strategy and national census data from 2000 to 2005, we find that individuals living in cities with greater exposure to FDI Liberalization exhibit higher likelihood of being in a better occupation than their fathers. The reason is that FDI liberalization leads to greater demand for high-skilled labor and therefore, higher skill premium, which encourages workers in young generations to obtain better education and work in high-skilled occupations. The positive effect is more salient for families with low socioeconomic status and coming from underdeveloped regions.