Chinese Overseas Foreign Direct Investment and Income Inequality in the Developing World

This paper investigates the effects of foreign direct investment (FDI) by Chinese state-owned enterprises (SOEs) and privately-owned enterprises (POEs) on host-state income inequality in developing countries. Using two-stage least squares with a synthetic instrumental variable modeling technique and total and sectoral FDI data from 2003 to 2019, we find that Chinese SOEs tend to reduce host-state income inequality, while Chinese POEs generally have the opposite effect and raise inequality. We argue that the Chinese government pays greater attention to the overseas corporate conduct of SOEs than POEs out of reputational concerns, which could affect SOEs' hiring practices in a way that reduces inequality in host countries. Conversely, POEs, who receive less Chinese government backing and carry fewer burdens of the broader state and social objectives, invest in ways that may limit capital costs, favor wage cuts, and increase inequality. Our study contributes to the corporations' social responsibility and Chinese influence literatures.