On foreign-invested enterprises’ exit: Economic development or labor market price regulation?

We use the prefecture-level panel data and enterprise-level data of China's manufacturing enterprises from 2001 to 2009 to investigate the effects of economic development and minimum wage policy on foreign-invested enterprises' exit behavior. The increase of local minimum wage from the 25th percentile to the 75th percentile accounts for 20% of the average exit rate of foreign-invested manufacturing enterprises, while the local economic development does not affect the exit of foreign-invested manufacturing enterprises. Compared with “market-oriented” foreign-invested enterprises, “cost-saving-oriented” foreign-invested enterprises are more likely to exit from the market owing to the rise of minimum wage. Enterprises in industries with high labor intensity, large scales, low average wages, relatively high proportions of low-skilled labor, fierce competition, and poor industrial supporting facilities are more likely to be negatively affected by the rise of minimum wages.