The Effects of Foreign Direct Investment on Industrial Growth: Evidence from a Regulation Change in China
AbstractInward foreign direct investment (FDI) in China has been accompanied by rapid economic growth. A growing literature has emerged in recent years examining the role of FDI on Chinese economic growth. However, measuring the e?ects of FDI has been challenging, because other fac- tors which in?uence ?rms?productivity occur in parallel with FDI, and because economic growth also simultaneously attracts FDI. To address these endogeneities, this paper analyzes the e?ects of a change in the FDI regulations on the productivity growth of Chinese industries using Chinese industry-level panel data. In 2002, the Chinese government lifted its regulations on the entry of foreign a￠ liates, which has made it substantially easier for foreign ?rms to engage in FDI in a?ected industries. As a result of this regulation change, our di?erence-in-di?erences estimates show that these industries experienced signi?cantly larger increases in foreign ?rms?total sales, exports, and domestic sales. We also ?nd that this increase in FDI resulted in an increase in labor productivity and in total factor productivity (TFP) of the a?ected industries and local industries, but we do not ?nd that they experienced signi?cantly larger in?ows of FDI or productivity growth before 2002, which provides evidence against endogeneity concerns. The results above are su￠ - ciently robust to include changes in industrial tari? reduction as controls. These ?ndings suggest that the growth of foreign sales and TFP in a?ected industries is not well explained except by the e?ects of regulation changes.
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Bibliographic InfoPaper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 856.
Date of creation: Apr 2013
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More information through EDIRC
Foreign Direct Investment; Regulation Change; Industrial Growth; Technology Spillovers; Difference-in-Differences.;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-20 (All new papers)
- NEP-DEV-2013-04-20 (Development)
- NEP-EFF-2013-04-20 (Efficiency & Productivity)
- NEP-FDG-2013-04-20 (Financial Development & Growth)
- NEP-TRA-2013-04-20 (Transition Economics)
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