The impact of foreign ownership, local ownership and industry characteristics on spillover benefits from foreign direct investment in China (original) (raw)
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Do Chinese domestic firms benefit from FDI inflow? Evidence of horizontal and vertical spillovers
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This paper aims to address the question if local ownership requirement facilitates spillover from foreign direct investment (FDI). To achieve the goal, I investigate empirically the effect of entries of wholly-owned FDI on local firms’ productivity using Chinese firm-level data. The idea is that, if entries of wholly-owned FDI into the industries that previously had only joint ventures operating can boost productivity of local firms, it suggests that local ownership requirement that prohibits these entries is spillover-depressing. Results show that the entries of foreign wholly-owned FDI were associated with significant increases in both productivity and market share of Chinese firms, with the effect concentrated in high-tech industries. This finding suggests that local ownership requirement might hinder international technology diffusion and, hence, policymakers should rethink about its effectiveness.
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Journal of International Business Studies, 2007
This paper finds that the nationality of ownership of foreign investors significantly impacts upon productivity spillover effects, revealing a curvilinear relationship with foreign direct investment on data for overseas Chinese (Hong Kong, Macau and Taiwan) multinational enterprises, but not for other (Western) firms. This relationship is most pronounced for low-technology host industries. These findings suggest that the curvilinear form is more appropriate to the future study of the spillover effects of foreign presence.
Testing for horizontal and vertical foreign investment spillovers in China, 1998–2007
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Foreign direct investment (FDI) now accounts for an important source of capital inflows into developing countries, having increased from 22billionin1990toabout22 billion in 1990 to about 22billionin1990toabout200 billion annually in recent years. Developing countries are major recipients of global inward FDI, currently attracting about one third of total global inward FDI. 1 FDI is an attractive source of global finance, because it is relatively stable compared to other capital flows and can also introduce advanced technologies. With rapid expansion in FDI throughout the world economy, the role of multinational enterprises in technology transfer and spillovers is receiving increasing attention. Technology spillovers in this paper are defined to take place when the entry or presence of multinationals increases the productivity of domestic firms, and the multinationals do not fully internalize the value of these benefits. Spillovers should be external to firms' total factor productivity after controlling for inputs. We define intra-industry spillovers (also called
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The purpose of this study is to assess the impact of foreign direct investment (FDI) on the labor productivity and technical efficiency for a cross-provincial sample of Chinese industrial sectors, with a special focus on different FDI sources. After considering some econometric issues, such as heteroscedasticity, simultaneity, collinearity, model misspecification, and normality, through some related hypotheses testing this study concludes that different sources of FDI might lead to contrasting effects on local firms in Chinese industries. Investments from Taiwan, Hong Kong, and Macao (THM) seem to improve their technical efficiency in production, whereas investments from other foreign countries (OFC) primarily affect industrial production of China’s regions in terms of enhancing labor productivity.
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Spillover Effect from Foreign Direct Investment in China
It is important for both academic research and policy making to investigate the net effect on total factor productivity of domestic firms brought about by the Foreign Direct Investment (FDI). On the one hand, domestic firms could learn from foreign-invested firms by imitating their technologies and management practices, poaching their employees and using the same export channels. On the other hand, foreign invested firms may take away the market shares from domestic firms, thereby decreasing their scale of operation and lowering down their productivity. This paper studies the net effect of foreign direct investment on the productivity of domestic firms using an extensive dataset containing about 1 million observations between 1998 and 2003. With the Olley-Pakes estimation of total factor productivity and the Fixed-Effects model, we find positive net effect of FDI on the productivity of domestic firms. We further find that the net effect of FDI attenuates with the distance between foreign direct investment and the domestic firms. The latter result has important policy implications given the significant size of China's geography and the extremely uneven distribution of foreign direct investments.
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