Working Paper: CEPR ID: DP12809
Authors: Kun Jiang; Wolfgang Keller; Larry Qiu; William Ridley
Abstract: This paper studies international joint ventures, where foreign direct investment is performed by aforeign and a domestic firm that together set up a new firm, the joint venture. Employing administrativedata on all international joint ventures in China from 1998 to 2007—roughly a quarter of all internationaljoint ventures in the world—we find, first, that Chinese firms chosen to be partners of foreign investorstend to be larger, more productive, and more likely subsidized than other Chinese firms. Second, there issubstantial technology transfer both to the joint venture and to the Chinese joint venture partner, anexternal, intergenerational technology transfer effect that this paper introduces. Third, with technologyspillovers typically outweighing negative competition effects, joint ventures generate on net positiveexternalities to other Chinese firms in the same industry. Joint venture externalities are large, perhapstwice the size of wholly-owned FDI spillovers, and it is R&D-intensive firms, including the joint venturesthemselves, that benefit most from these externalities. Furthermore, the positive external joint ventureeffect is larger if the foreign firm is from the U.S. rather than from Japan or Hong Kong, Macau, andTaiwan, while this effect is virtually absent in broad sectors that include economic activities for whichChina’s FDI policy has prohibited joint ventures.
Keywords: international joint ventures; partner selection; technology spillovers; foreign direct investment; competition effects
JEL Codes: F14; F23; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Substantial technology transfer occurs to the joint venture (L24) | Higher productivity, sales, and patenting compared to non-joint ventures (L24) |
| Substantial technology transfer occurs to the Chinese partner firm (L24) | Higher productivity, sales, and patenting compared to non-joint ventures (L24) |
| IJVs generate positive externalities for other Chinese firms in the same industry (F23) | Technology spillovers outweigh negative competition effects (O39) |
| Technology spillovers are more significant when the foreign partner is from the U.S. (O36) | Positive externalities for other Chinese firms (F69) |
| Little evidence of positive spillovers in sectors where China’s FDI policy prohibits joint ventures (F23) | Strong link between regulatory environments and technology transfer effects (O30) |
| Chinese firms selected as partners for foreign investors in IJVs tend to be larger (F23) | Likelihood of being chosen as a partner (C52) |
| Chinese firms selected as partners for foreign investors in IJVs tend to be more productive (F23) | Likelihood of being chosen as a partner (C52) |