Differences in returns to FDI between China's coast and interior: One country, two economies?

► We use a large sample of firm-level data covering the period 1998-2004 to estimate differential factor returns for labor, domestic capital, and foreign capital for the coast and interior regions of China. ► The estimation results and calculations of factor returns vary significantly for the balanced and unbalanced data sets and also for the application of least squares and fixed effects estimators. ► After sorting through the issues raised by these different approaches, we conclude that the disparities between the returns to FDI in the coastal and interior regions are robust; they suggest that the returns to FDI in the interior are approximately 50 percent greater than in the coast.