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Credit Constraints and FDI Spillovers in China

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  • Natasha Agarwal
  • Chris Milner
  • Alejandro Riaño

Abstract

This paper examines whether credit constraints affect Chinese firms’ absorption of productivity spillovers from foreign firms. Using firm-level data for 2001-2005, we find evidence of positive spillovers originating from FDI from countries other than Hong Kong, Macau and Taiwan for non-state owned Chinese firms operating in the same industry and province. Our main finding is that domestic firms operating in industries characterised by a greater reliance on external finance, our measure of credit constraints, enjoy lower (and even negative) spillovers from the activity of foreign-owned firms. This result is robust to the inclusion of a wide variety of other industry-level characteristics interacting with the activity of foreign firms.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4313.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4313

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Keywords: FDI spillovers; credit constraints; China;

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Cited by:
  1. 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.
  2. Farole, Thomas & Winkler, Deborah, 2012. "Foreign firm characteristics, absorptive capacity and the institutional framework : the role of mediating factors for FDI spillovers in low- and middle-income countries," Policy Research Working Paper Series 6265, The World Bank.

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