urbanization and FDI of China

Topics: Investment, Foreign direct investment, Macroeconomics Pages: 10 (1207 words) Published: May 4, 2014
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CHINA ECONOMIC 

GROWTH


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Mohamed Adirizak (S2583348)
Merijn Schakelaar
Aron Tepper

March 12, 2014

Economics and business economics

University of Groningen

First draft


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Table of contents

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1. Introduction

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Type chapter title (level 1)

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Type chapter title (level 2)

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Type chapter title (level 3)

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Type chapter title (level 1)

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Type chapter title (level 1)

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Conclusion 4

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1. Introduction

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2. Transition of labor

To explain the transition from low skilled labor to high skilled labor, we first look at the incentives for workers to make the transition. Secondly we discuss the higher education numbers. At last we look at changes it made in rural agricultural China.

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To have a transition from low skilled labor to high skilled labor, workers have certain incentives to make a change. Figure two shows the difference in earnings by certain degrees of education. The distinction is made between college and high school graduates and college and junior high or lower education graduates.

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From 1989 to 2009, according to the data, income differences between college graduates and high school graduates have steadily increased and reached a maximum in 2002. Furthermore, the income differentials between junior high and below education increased also, topping the chart in 2008.

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The graph shows that there has been an modest increasing trend the past few years. According to Chi (2012), a possible explanation for this phenomen might be that the pay still had less variance from the pre-reform labor market. Moreover, since 1999 the number of enrolled students in higher education increased spectactualy, adding to the high skilled labor force of China.

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Data Worldbank
http://siteresources.worldbank.org/EDUCATION/Resources/
278200-1126210664195/1636971-1126210694253/China_Higher_Education.pdf

The economy of rural China has developed and changed radically ever since the economic reforms in 1978. Paul Bowles (2010) shows that from 1991 to 2006 the percentage of rural inhabitants focusing their labour activities primarily to agricultural jobs has decreased from 72.2 percent in 1991 to 35.0 percent in 2006. This might indicate that farming employees are specializing other skills.

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3. The impact on foreign investments

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In the first part of this paper we identified the various forms of labor transition. In the following part we will explain how these transitions influence foreign investments. 
 Since the beginning of the economic reforms in 1978, the economy of China has grown rapidly. This growth, along with investment opportunities, caused a significant increase in foreign investments. China received about 20 percent of all foreign direct investments to developing countries over the last 10 years and over 100 billion in 20081. 


So how could transitions in labor influence foreign investments?  

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Foreign direct investments (FDI) inflow to China from 1979 to 20102:  

Education
China’s population is the biggest in the world and four times the size of the U.S. population. If talent is randomly distributed among the world population and if China’s education system is able to identify the brightest students, then China has a larger pool of talent to draw from than any other country in the world3. Education is an important factor in research and development. An interesting climate for research and development can attract foreign investments.

 

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Rising wages
Domestically, China’s continued economic growth means that one-fifth of the world population will continue to experience significant improvements in their living standard. Due to rising wealth and rising wages, a share of China’s...
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