Cross-Country Diffusion of Culture through FDI: A Firm-Level Analysis of Gender Inequality in China∗

This paper studies how foreign direct investment (FDI) contributes to cultural convergence across countries. Specifically, we examine whether multinational firms transfer corporate culture of employing women to foreign affi liates and eventually to local firms in the host country. To guide our empirical analysis, we build a parsimonious multi-sector task-based model that features heterogeneity in firms’productivity and their biases towards female workers. Workers are differentiated by gender, with women having a comparative advantage in skill-intensive versus brawn-intensive tasks, and sectors differing in their dependence on these tasks. Because discrimination lowers profits, an increased prevalence of foreign firms induce discriminating firms to increase female employment, due to both competition and imitation. Using a large manufacturing firm data set from China over the 2004-2007 period, we find that foreign-invested enterprises (FIEs) from countries with lower gender inequality tend to hire proportionately more women and are more likely to appoint female managers. In addition to the within-firm cultural transfer, we find evidence of cultural spillover from FIEs to local firms. Such effects 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 our model predictions and show that FDI lowers gender inequality through channels beyond the competition effect proposed by Becker (1957). Our results highlights an unexplored externality of FDI, in addition to technology and managerial spillovers as emphasized by existing studies.