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Ownership biases and FDI in China: two provinces

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Huang, Yasheng
Abstract

Jiangsu and Zhejiang are of two of China most prosperous and dynamic provinces. This paper first presents a factual account of two empirical phenomena: 1) FDI has played a more substantial role in the economic development of Jiangsu than in Zhejiang, and 2) ownership biases against domestic private firms in Jiangsu were more substantial than in Zhejiang. The paper hypothesizes that there is a connection between these two empirical phenomena. Specifically, ownership biases against domestic private firms increase preferences for FDI because FDI provides a measure of relative property rights security. Thus a biased domestic private firm has an incentive to move its assets and/or future growth opportunities to the foreign sector. The paper uses two private-sector surveys - one conducted in 1993 and the other in 2002 - to provide an empirical test of this hypothesis. Our analysis shows, controlling for a variety of firm-level attributes and industry and regional characteristics, those private firms which perceive ownership biases to be more severe are more likely to form joint ventures with foreign firms.

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Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number 4537-04.

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Date of creation: 03 Jun 2005
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Handle: RePEc:mit:sloanp:18074

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

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Keywords: Ownership Biases; FDI; China;

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  1. Lecraw, Donald J, 1977. "Direct Investment by Firms from Less Developed Countries," Oxford Economic Papers, Oxford University Press, vol. 29(3), pages 442-57, November. [Downloadable!] (restricted)
  2. Chong-En Bai & David D. Li & Yingyi Qian & Yijiang Wang, 1999. "Anonymous Banking and Financial Repression: How Does China's Reform Limit Government Predation without Reducing Its Revenue?," Working Papers 99014, Stanford University, Department of Economics. [Downloadable!]
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  3. Huang, Yasheng, 2003. "One country, two systems: Foreign-invested enterprises and domestic firms in China," China Economic Review, Elsevier, vol. 14(4), pages 404-416. [Downloadable!] (restricted)
  4. Park, Albert & Shen, Minggao, 2003. "Joint liability lending and the rise and fall of China's township and village enterprises," Journal of Development Economics, Elsevier, vol. 71(2), pages 497-531, August. [Downloadable!] (restricted)
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  5. Hausmann, Ricardo & Pritchett, Lant & Rodrik, Dani, 2004. "Growth Accelerations," CEPR Discussion Papers 4538, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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