The Effects of FDI Liberalization on Occupational Mobility : Evidence from China

In this paper, we rely on the plausibly exogeneous relaxations in Foreign Direct Investment (FDI) policies from 2007 to 2015 to study the impact of FDI liberalization on occupational mobility in China. To quantify the policy changes, we create a 4-digit FDI liberalization index and link it with individual-level worker data from China Family Panel Studies (CFPS) from 2010 to 2016. We find that increase in industries' openness to FDI leads to an increase in workers' mobility across industries. Further instrumental variable strategy analysis verifies a strong positive correlation between the FDI liberalization index and FDI. Specifically, we find that increase in FDI causes workers' likelihood of switching occupations to increase by 2.75%. Our results are more consistent with the vertical sorting model in ccoupational choice rather than the horizontal sorting theory because we find that only skilled workers or workers at the top wage distribution, mainly males, are more likely to switch occupations and they enjoy a career progression after the switch. In contrast, occupation switch behaviors of workers at the bottom wage distribution are not affected by FDI liberalization