Contraction under minimum wages? Operational and financial advantages of multinational subsidiaries in China

Abstract

The advantages of multinational enterprises (MNEs) over domestic firms have been widely acknowledged in several streams of literature. However, a more refined analysis on the sources of their advantages is lacking. Exploiting minimum wage hikes in China as an exogenous shock, we theorize that, due to multinational advantages, the employment of multinational subsidiaries may be less affected by minimum wages than that of domestic firms, and that their multinational advantages arise from both operational and financial advantages. Using nation-wide longitudinal firm data from 1998 to 2007 and border discontinuity design (BDD) to estimate the causal effects, we find supportive evidence for our hypotheses. We contribute to the literature on multinational advantages and minimum wages.