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 10: Spillover Effects of FDI on China’s Domestic Firms’ Exports

Chunlai Chen

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

Extract

INTRODUCTION Since the early 1980s, China’s exports have increased rapidly from US$20 billion in 1980 to US$1431 billion in 2008 with an annual growth rate of 17 per cent. Consequently, China has become the largest exporting nation in the world. What are the sources of China’s rapid export expansion since the early 1980s? Apart from the market-oriented economic reforms and trade liberalization particularly since the 1990s and after China’s accession to the WTO in 2001, one of the main sources is the massive inflows of FDI associated with the fast export growth of FDI firms, whose export share in China’s total exports increased from 0.05 per cent in 1980 to 55.25 per cent in 2008. What, however, are the impacts of FDI on China’s domestic firms’ exports? This question is worthy of both theoretical analysis and empirical investigation because it is expected that export spillovers are one of the main benefits generated by FDI to host economies. This can not only help domestic firms improve productivity, promote specialization and increase exports, but also can help host countries improve resource allocation and play their comparative advantages in international trade since FDI tends to be in the sectors in which host countries have comparative advantages or the comparative advantages are increasing (Dunning, 1993). Therefore, this chapter aims to investigate empirically the impact of FDI on China’s domestic firms’ exports. We seek to answer the questions: what is the contribution of FDI to China’s export expansion, and particularly, what is the...

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