Trade and Foreign Direct Investment in China: A Political Economy Approach
AbstractWe view the political process in China as trading off the social benefits of increased trade and foreign direct investment, against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman (1994, 1996) is used to derive an empirically estimable government objective function. The key structural parameters of this model are estimated using province-level data on foreign direct investment and trade flows in China, over the years 1984-1995. We find that the weight applied to consumer welfare is between one-fifth and one-twelfth of the weight applied to the output of state-owned enterprises. We find that governmental preferences have shifted over time, but even in recent periods the weight on consumer welfare is only one-half of the weight on state-owned enterprises. This suggests that China may find it politically difficult to follow through with liberalizing its trade and investment regimes, such as under its WTO accession proposal.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7100.
Date of creation: Apr 1999
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Other versions of this item:
- Branstetter, Lee G. & Feenstra, Robert C., 2002. "Trade and foreign direct investment in China: a political economy approach," Journal of International Economics, Elsevier, vol. 58(2), pages 335-358, December.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-05-03 (All new papers)
- NEP-CDM-1999-05-03 (Collective Decision-Making)
- NEP-DEV-1999-05-03 (Development)
- NEP-IFN-1999-05-03 (International Finance)
- NEP-POL-1999-05-03 (Positive Political Economics)
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