Foreign Direct Investment in China

Foreign Direct Investment in China

Location Determinants, Investor Differences and Economic Impacts

Chunlai Chen

Foreign Direct Investment in China is one of the most comprehensive studies of FDI in China and provides a remarkable background of information on the evolution of China’s FDI policies over the last 30 years.

Chapter 9: Spillover Effects of FDI on China’s Domestic Firms’ Productivity

Chunlai Chen

Subjects: asian studies, asian economics, economics and finance, asian economics, international economics, political economy, politics and public policy, political economy

Extract

INTRODUCTION In the previous chapter, we revealed that the huge amount of FDI inflows into China has contributed positively to China’s economy in terms of capital formation, employment creation and economic growth. However, we may still want to ask the question: what would be the impact of FDI on China’s domestic firms’ productivity through technology spillovers? The question is significant in a theoretical sense as it is hypothesized that FDI contributes positively to the host country’s productivity growth through its technology spillovers to domestic firms (Dunning, 1993; Caves, 1996). The question is also significant in an empirical sense as evidence from both developed and developing countries varies in supporting the existence of positive externalities generated by FDI (Gorg and Greenaway, 2004). The inconsistency between the theoretical prediction and what has been found and presented in many empirical studies with respect to the impact of FDI on domestic firms’ productivity could be due to many factors, among which three stand out. First, it is not clear through which channels FDI exerts its spillovers. For example, it could occur through increased intra-industry competition, through sharing the common labour pool with domestic firms, or through forward and backward linkages with domestic firms. Second, there are a number of technical problems associated with specific estimation methods, such as endogeneity and selection bias, which may influence the empirical results. Third, it is generally assumed in literature that spillovers from FDI are consistent over time, across industries and regions, and furthermore independent of its industrial and...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information