Working Paper: CEPR ID: DP6573
Authors: Filip Abraham; Jozef Konings; Veerle Slootmaekers
Abstract: We use a new longitudinal data set of more than 15,000 Chinese manufacturing plants to show that the direct and indirect effects of foreign direct investment on measured firm level productivity depend on a number of firm specific features and institutional factors. We find that domestic firms engaged in a joint-venture with a foreign partner are on average more productive, as well as exporting plants and plants located in special economic zones. In addition, domestic firms benefit from horizontal spillovers from foreign firms on average. However, these spillovers depend on the structure and origin of ownership as well as on specific characteristics of the special economic zones. First, spillovers are less likely to occur from fully foreign owned firms than from joint-ventures. Second, spillovers from foreign direct investment originating from oversees Chinese (Hong Kong, Macau and Taiwan) are stronger than from the rest of the world. Third, spillovers are higher in the special economic zone aimed at attracting foreign capital to fasten the development of China?s own high tech industries.
Keywords: China; Firm Heterogeneity; Productivity; Spillovers
JEL Codes: F21; L2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Joint ventures with foreign partners (L24) | higher productivity levels in domestic firms (O49) |
| Horizontal spillovers from foreign firms (F23) | benefits to domestic firms (F23) |
| Ownership structure of foreign firms (F23) | magnitude of spillovers (F69) |
| Stronger spillovers from overseas Chinese FDI (F23) | benefits to domestic firms (F23) |
| Special economic zones (SEZs) (O17) | amplifying spillover effects (F62) |
| Presence of foreign firms (F23) | negative effects on domestic exporters (F69) |
| Extent of spillovers (F69) | influenced by firm's export status and SEZ characteristics (F14) |