FDI and Credit Constraints: Firm Level Evidence in China
AbstractIn this paper, we analyze whether incoming foreign investment in China plays an important role in alleviating domestic firms' credit constraints. Access to external finance is a crucial determinant of business expansion. Using firm-level data on 2,200 domestic companies for the period 1999-2002, we investigate the extent to wich firms are financially constrainted and whether direct foreign investment relaxes financing constraints of firms. When we split domestic firms into public and private firms, we find that public firms' investment decisions are not sensitive to debt ratios or the cost of debt. Nor is there any evidence that public firms are affected by foreign firms presence. We interpret this as evidence in support of the notion of a soft budget constraint for public firms. In contrast, private domestic firms appear more credit constrained than state-owned firms but their fincancing constraints tend to ease in a context of abundant foreign investment.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CEPII research center in its series Working Papers with number 2007-11.
Date of creation: May 2007
Date of revision:
FDI; Banking system; Financial markets; Credit;
Other versions of this item:
- Jérôme Héricourt & Sandra Poncet, 2007. "FDI and credit constraints : firm level evidence in China," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00144621, HAL.
- Jérôme Héricourt & Sandra Poncet, 2007. "FDI and credit constraints : firm level evidence in China," Documents de travail du Centre d'Economie de la Sorbonne bla07009, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-11 (All new papers)
- NEP-CNA-2007-06-11 (China)
- NEP-DEV-2007-06-11 (Development)
- NEP-FDG-2007-06-11 (Financial Development & Growth)
- NEP-MAC-2007-06-11 (Macroeconomics)
- NEP-TRA-2007-06-11 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stephen Bond & Julie Ann Elston & Jacques Mairesse & Benoît Mulkay, 1999.
"Financial Factors and Investment in Belgium, France, Germany and the UK : A Comparison using Company Panel Data,"
99-64, Centre de Recherche en Economie et Statistique.
- Steve Bond & Julie Elston & Jacques Mairesse & Benoit Mulkay, 1997. "Financial factors and investment in Belgium, France, German and the UK: A comparison using company panel data," IFS Working Papers W97/08, Institute for Fiscal Studies.
- Stephen Bond & Julie Elston & Jacques Mairesse & Benoit Mulkay, 1997. "Financial Factors and Investment in Belgium, France, Germany and the UK:A Comparison Using Company Panel Data," NBER Working Papers 5900, National Bureau of Economic Research, Inc.
- Beck, T.H.L. & Levine, R. & Loayza, N., 2000.
"Finance and the sources of growth,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-3125520, Tilburg University.
- Haramillo, Fidel & Schiantarelli, Fabio & Weiss, Andrew, 1996.
"Capital market imperfections before and after financial liberalization: An Euler equation approach to panel data for Ecuadorian firms,"
Journal of Development Economics,
Elsevier, vol. 51(2), pages 367-386, December.
- Fabio Schiantarelli & Andrew Weiss & Fidel Jaramillo, 1993. "Capital Market Imperfections Before And After Financial Liberization: An Euler Equation Approach To Panel Data For Ecuadorian Firms," Boston College Working Papers in Economics 221, Boston College Department of Economics.
- Jaramillo, Fidel & Schiantarelli, Fabio & Weiss, Andrew, 1993. "Capital market imperfections before and after financial liberalization : a Euler Equation approach to panel data for Ecuadorian firms," Policy Research Working Paper Series 1091, The World Bank.
- Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988.
"Financing Constraints and Corporate Investment,"
NBER Working Papers
2387, National Bureau of Economic Research, Inc.
- Boyreau-Debray, Genevieve & Wei, Shang-Jin, 2004.
"Pitfalls of a State-Dominated Financial System: The Case of China,"
CEPR Discussion Papers
4471, C.E.P.R. Discussion Papers.
- Genevieve Boyreau-Debray & Shang-Jin Wei, 2005. "Pitfalls of a State-Dominated Financial System: The Case of China," NBER Working Papers 11214, National Bureau of Economic Research, Inc.
- Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities Are Useful: A Comment On Kaplan And Zingales," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 695-705, May.
- Stephen Bond, 2000.
"Noisy Share Prices and the Q Model of Investment,"
Econometric Society World Congress 2000 Contributed Papers
1320, Econometric Society.
- Gelos, R. Gaston & Werner, Alejandro M., 2002.
"Financial liberalization, credit constraints, and collateral: investment in the Mexican manufacturing sector,"
Journal of Development Economics,
Elsevier, vol. 67(1), pages 1-27, February.
- Gaston Gelos & Alejandro M. Werner, 1999. "Financial Liberalization, Credit Constraints, and Collateral - Investment in the Mexican Manufacturing Sector," IMF Working Papers 99/25, International Monetary Fund.
- Harrison, Ann E. & Love, Inessa & McMillan, Margaret S., 2002.
"Global capital flows and financing constraints,"
Policy Research Working Paper Series
2782, The World Bank.
- Park, Albert & Sehrt, Kaja, 2001.
"Tests of Financial Intermediation and Banking Reform in China,"
Journal of Comparative Economics,
Elsevier, vol. 29(4), pages 608-644, December.
- Albert Park and Kaja Sehrt & Albert Park and Kaja Sehrt, 1999. "Tests of Financial Intermediation and Banking Reform in China," William Davidson Institute Working Papers Series 270, William Davidson Institute at the University of Michigan.
- David Dollar & Shang-Jin Wei, 2007.
"Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China,"
NBER Working Papers
13103, National Bureau of Economic Research, Inc.
- David Dollar & Shang-Jin Wei, 2007. "Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China," IMF Working Papers 07/9, International Monetary Fund.
- Shang-Jin Wei & Eswar Prasad, 2005.
"The Chinese Approach to Capital Inflows: Patterns and Possible Explanations,"
IMF Working Papers
05/79, International Monetary Fund.
- Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 421-480 National Bureau of Economic Research, Inc.
- Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc.
- Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December.
- von Kalckreuth, Ulf & Chirinko, Robert S., 2002.
"Further Evidence On The Relationship Between Firm Investment And Financial Status,"
Discussion Paper Series 1: Economic Studies
2002,28, Deutsche Bundesbank, Research Centre.
- Robert Chirinko & Ulf von Kalckreuth, 2003. "Further Evidence on the Relationship between Firm Investment and Financial Status," Emory Economics 0302, Department of Economics, Emory University (Atlanta).
- Franklin Allen & Jun Qian & Meijun Qian, 2002.
"Law, Finance, and Economic Growth in China,"
Center for Financial Institutions Working Papers
02-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Hallward-Driemeier, Mary & Wallsten, Scott & Lixin Colin Xu, 2003. "The investment climate and the firm : firm-level evidence from China," Policy Research Working Paper Series 3003, The World Bank.
- Ann E. Harrison & Margaret S. McMillan, 2001. "Does Direct Foreign Investment Affect Domestic Firms' Credit Constraints?," NBER Working Papers 8438, National Bureau of Economic Research, Inc.
- Guariglia, Alessandra & Poncet, Sandra, 2008. "Could financial distortions be no impediment to economic growth after all? Evidence from China," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 633-657, December.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.