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Do Institutions Matter for FDI Spillovers? The Implications of China’s “Special Characteristics”

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  • Luosha Du

    ()
    (University of California, Berkeley)

  • Ann Harrison

    ()
    (World Bank)

  • Gary Jefferson

    ()
    (Department of Economics, Brandeis University)

Abstract

We investigate how institutions affect productivity spillovers from foreign direct investment (FDI) to China’s domestic industrial enterprises during 1998-2007. We examine three institutional features that comprise aspects of China’s “special characteristics”: (1) the different sources of FDI, where FDI is nearly evenly divided between mostly Organization for Economic Co-operation and Development (OECD) countries and the region known as “Greater China”, consisting of Hong Kong, Taiwan, and Macau; (2) China’s heterogeneous ownership structure, involving state- (SOEs) and non-state owned (non-SOEs) enterprises, firms with foreign equity participation, and non-SOE, domestic firms; and (3) industrial promotion via tariffs or through tax holidays to foreign direct investment. We also explore how productivity spillovers from FDI changed with China’s entry into the WTO in late 2001. We find robust positive and significant spillovers to domestic firms via backward linkages (the contacts between foreign buyers and local suppliers). Our results suggest varied success with industrial promotion policies. Final goods tariffs as well as input tariffs are negatively associated with firm-level productivity. However, we find that productivity spillovers were higher from foreign firms that paid less than the statutory corporate tax rate.

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File URL: http://www.brandeis.edu/departments/economics/RePEc/brd/doc/Brandeis_WP33.pdf
File Function: First version, 2011
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File URL: http://www.brandeis.edu/departments/economics/RePEc/brd/doc/Brandeis_WP33R.pdf
File Function: Revised version, 2012
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Bibliographic Info

Paper provided by Brandeis University, Department of Economics and International Businesss School in its series Working Papers with number 33.

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Length: 64 pages
Date of creation: Apr 2011
Date of revision: Sep 2012
Handle: RePEc:brd:wpaper:33

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Web page: http://www.brandeis.edu/departments/economics/
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  1. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, vol. 40(3-4), pages 345-371, May.
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  3. Lin,Justin Yifu, 2009. "Economic Development and Transition," Cambridge Books, Cambridge University Press, number 9780521514521, November.
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Blog mentions

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  1. Facciamo i conti
    by Alberto Bagnai in Goofynomics on 2014-02-25 00:03:00
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Cited by:
  1. Timo Mitze & Selin Özyurt, 2012. "The spatial dimension of trade- and FDI-driven productivity growth in Chinese provinces: A global cointegration approach," ERSA conference papers ersa12p512, European Regional Science Association.
  2. Harrison, Ann & Sepulveda, Claudia, 2011. "Learning from developing country experience : growth and economic thought before and after the 2008-09 crisis," Policy Research Working Paper Series 5752, The World Bank.
  3. Jeon, Yongbok & Park, Byung Il & Ghauri, Pervez N., 2013. "Foreign direct investment spillover effects in China: Are they different across industries with different technological levels?," China Economic Review, Elsevier, vol. 26(C), pages 105-117.
  4. Krammer, Sorin, 2010. "Do good institutions enhance the effect of technological spillovers on productivity? Comparative evidence from developed and transition economies," MPRA Paper 53985, University Library of Munich, Germany, revised 07 Feb 2014.
  5. Bikash Ranjan Mishra, Dr., 2011. "Spill-over effects of foreign direct investment: an econometric study of Indian firms," MPRA Paper 37759, University Library of Munich, Germany.

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