This study investigates how minimum wage affects small firms through spillover effects from large firms. Using firm-level panel data from Anhui Province in China, we find that after a minimum wage increase, small firms will reduce workers’ wages and create jobs due to the inflow of displaced workers from large firms. This spillover effect is larger for micro firms and private firms, where minimum wage compliance tends to be lower. We also find that high-tech small firms are more affected than low-tech ones because of their greater demand for skilled labor. Our findings not only highlight the unintended consequences of minimum wage on small firms in China, but also help to explain the ambiguous employment effects of minimum wage on the covered sector in developing countries.

Using firm-level data from Changzhou, a prefectural city in China's Yangzi River Delta, we investigate the performance of both internal and external research and development (R&D) in high-tech firms. We find that, on average, high-tech firms with more internal R&D expenditure apply for more patents in terms of both the total number of patents and the number of invention patents. Internal R&D is most efficient in foreign firms, followed by private firms and then state-owned enterprises. These findings highlight the importance of privatizing high-tech firms in China if the government intends to accelerate industrial upgrading and convert the pattern of “Made in China” into “Created in China.”

The rapid growth and high levels of internationalization by Chinese firms raise a natural interest in the study of the factors that have led to the notable international presence of Chinese firms. To contribute to this effort, we use data from the 2008–10 survey of China's high-tech firms, conducted by the Chinese Ministry of Science and Technology, to estimate the determinants of Chinese firm outward foreign direct investment (OFDI). In our analysis, the primary independent variables include high-tech intensity, human capital acquisition, and institutional factors. We also controlled for various firm characteristics such as firm age, total value of fixed assest, and firm ownership. Estimation from our fixed-effects model uncovers a number interesting patterns in OFDI outcomes. Most notable among the significant determinants of OFDI, the number of Chinese returnees employed by a firm seems to be more important than tax reduction policies. Further, the influence of the Chinese returnees have a stronger effect on non–state-controlled firms than they do for state-controlled firms. This finding is intuitive, because the Chinese returnees who were trained in the West have an understanding of product markets, labor markets, financial markets, language and business culture, and trade laws in both China and the West. Their unique skill sets and knowledge appear to serve as an important catalyst in the growth of OFDI and internationalization by Chinese firms.