The Quest for Innovation and Sustainability
Innovation, Co-operation and Development series
Edited by Wilfred Dolfsma, Geert Duysters and Ionara Costa
Chapter 6: Cross-border Investment and Economic Integration: The Case of Guangdong Province and Hong Kong SAR
Naubahar Sharif and Can Huang INTRODUCTION Globalization ‒ the integration of national economies into a global system ‒ entails, in part, the transfer of manufacturing sectors from the developed world to developing countries. As Feenstra (1998) indicates, measured by the merchandise trade relative to value added, the world is much more integrated than in the past. However, this ongoing global integration of industrial and trade activities brings with it the disintegration of production or business processes whereby, to increase profits, multinationals seek to outsource or directly invest either domestically or abroad. The overseas relocation of manufacturing and services spurs controversy and debate, not only in the advanced countries from which the manufacturing sectors move but also in the developing countries that receive them via foreign direct investment (FDI). Leaders of advanced countries face political opposition to the unemployment that results from the offshoring activities of their home-based multinationals (Rodrik, 1997; Schultze, 2004). For their part, observers in FDI-recipient countries are concerned about the potentially negative effects of the domination of the manufacturing sector by foreign-owned companies. Local firms in recipient countries must weather fierce competition from their foreign counterparts and face difficulties in upgrading their technological competence from the low end of the global value chain. Motivated by intense debate about these issues, this chapter undertakes a comparative study of the performance of local and foreign competitors’ manufacturing firms in one such FDI-recipient region ‒ Guangdong Province, China ‒ and analyses the policy implications of the comparison for the advanced, FDI-outflow region ‒ Hong Kong...
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