Guy Liu: The paper studies the effect of changing labor costs on attracting FDI in China and its neighboring countries. On the basis of combined data from both WDI and China Statistical Yearbooks, the study applied a spatial panel model to look at the issue, and found that the wage effect has been negatively affecting China's competitiveness in attracting FDI.
As the paper highlights, the negative effect of a wage increase on FDI has been widely reported, and this finding does not conflict with the current view in literature but enhances the argument of the negative wage effect on FDI.
The estimation is acceptable but not robust because of the following:
There is not much discussion on how endogeneity could possibly contaminate estimation and its measures to prevent the possible effect....