OFDI and Monopsony Power: Evidence from Chinese Firms

As Chinese firms expand their outward foreign direct investment (OFDI) in both scale and scope, overseas expansion is no longer just about relocating production capacity. Instead, it has become a broader effort to integrate global resources and reposition value chains. Concurrently, China's domestic labor market is undergoing profound structural transformation in terms of labor supply, occupational composition, and income distribution. Against this backdrop, a systematic investigation of the effects of firms' overseas expansion on the domestic labor market carries both theoretical and practical significance. This paper first develops a theoretical model of OFDI's transmission mechanisms in the labor market. The model shows that OFDI simultaneously suppresses labor market markdowns, upgrades employment structures, and raises average wages. These effects operate via two main channels: productivity enhancement and structural shifts in labor demand. Building on this framework, we employ a staggered difference-indifferences (DID) approach using firm-level panel data for Chinese listed companies over 2006-2024 to empirically identify the effects and mechanisms of overseas expansion on the domestic labor market. The results show that firms' OFDI significantly reduces their labor market markdown-a measure of employer bargaining power in the labor market. This effect is stronger among non-state-owned enterprises and in high-tech industries. Mechanism tests confirm that OFDI significantly raises firms' labor productivity, average wages, and labor income share, while also increasing the share of highly educated employees, thereby confirming the dual transmission channels of productivity improvement and skillstructure upgrading. These findings suggest that overseas expansion is not merely industrial relocation, but rather an important force driving structural improvement of the domestic labor market. The paper provides new empirical evidence for understanding dynamic labor market adjustment in the context of globalization, and offers a reference for policymakers seeking to optimize outbound investment policies and refine labor market regulation.