A New Agenda
New Horizons in International Business series
Chapter 11: The Role of Foreign Direct Investment in Upgrading China’s Competitiveness
INTRODUCTION The accession of China to the World Trade Organization (WTO) brings with it huge opportunities, challenges and responsibilities. The opportunities are largely self evident, notably for Chinese businesses to participate freely in an expanding global market, and to help shape the future structure, content and terms of world trade and investment agreements. The challenges are no less demanding. To exploit fully these opportunities, China must raise the productivity and export competitiveness of its industries, enhance the skills of its labour force, upgrade its legal and institutional infrastructure, and reconﬁgure its economic activities. And it must do this in a way which promotes its comparative dynamic advantage, so enabling the country and its citizens to be beneﬁcial participants in the global economy. Over the past 30 years, the overwhelming consensus of scholarly research has shown that, provided the appropriate institutional framework is in place and the correct macroeconomic policies are followed, trade, foreign direct investment (FDI) and cross-border information and technology ﬂows can play a critical role in advancing such goals. In this chapter, we examine some of this evidence, and then present a sample of the more recent research ﬁndings on ways in which governments have sought to reconstruct their economic and industrial strategies in the light of the demands of the new global economy. More particularly, we propose to centre our remarks on three observations, each of which is supported by extensive empirical research. RAISING PRODUCTIVITY Our ﬁrst observation is that inbound foreign direct investment raises...
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