FDI and Cross-Country Di§usion of Culture: A Firm-Level Analysis of Gender Inequality in China∗

This paper examines whether and how foreign direct investment (FDI) may lead to cultural convergence across countries. Using gender culture as an example, we study whether FDI may change foreign a¢liates and domestic firms’ biases towards female workers in the host country. To guide our empirical exploration, we build a parsimonious multi-sector task-based model that features heterogeneity in firms’ productivity and their biases towards female workers. Discrimination lowers profits and productivity. Through competition and imitation, domestic firms increase female employment in response to increased FDI inflow. Using comprehensive manufacturing firm-level data from China over 2004-2007, we find evidence to support our model predictions. Foreign invested firms (FIEs) from countries with lower gender inequality tend to employ proportionately more female workers and are more likely to appoint female managers. In addition to gender cultural transfer within multinational firm boundary, we find evidence of gender cultural spillover from FIEs to Chinese local firms. Such e§ects are stronger in sectors in which females have a comparative advantage, for the less productive firms, and from FIEs whose home countries are less biased against women. These results support the predictions of our model and show that FDI lowers gender inequality through channels beyond the competition e§ect proposed by Becker (1957). Our study complements the existing literature on FDI spillover, which focuses primarily on technology spillover from foreign firms.