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Trade and Foreign Direct Investment in China: A Political Economy Approach

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Author Info
Lee G. Branstetter
Robert C. Feenstra

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Abstract

We 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7100.

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Date of creation: Apr 1999
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Handle: RePEc:nbr:nberwo:7100

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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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.:
  1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
    Other versions:
  2. Gene Grossman & Elhanan Helpman, 1994. "Foreign Investment with Endogenous Protection," NBER Working Papers 4876, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Jeffrey D. Sachs & Wing Thye Woo, . "Understanding China'S Economic Performance," Department of Economics 97-04, California Davis - Department of Economics. [Downloadable!]
    Other versions:
  4. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February. [Downloadable!] (restricted)
  5. Barry Naughton, 1996. "China's Emergence and Prospects as a Trading Nation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-2), pages 273-344. [Downloadable!]
  6. Robert C. Feenstra et al., 1999. "Discrepancies in International Data: An Application to China-Hong Kong Entrepot Trade," American Economic Review, American Economic Association, vol. 89(2), pages 338-343, May. [Downloadable!] (restricted)
  7. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November. [Downloadable!] (restricted)
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  1. Sebastián Claro, 2002. "On the Costs and Effectiveness of Tarjeting State Employment: Germany in the 1990s and China in the 2000s," Documentos de Trabajo 218, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  2. Adolfo Cristobal-Campoamor, 2009. "International convergence and local divergence," The Annals of Regional Science, Springer, vol. 43(2), pages 527-558, June. [Downloadable!] (restricted)
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  3. Qing Gong, Yang, 2004. "Has China’s Economic Reform Improved Enterprise Performance? A DEA Evaluation Of China’s Large And Medium Enterprises," ESRC Centre for Business Research - Working Papers wp287, ESRC Centre for Business Research. [Downloadable!]
  4. Sandra Poncet, 2004. "A Fragmented China," Tinbergen Institute Discussion Papers 04-103/2, Tinbergen Institute. [Downloadable!]
  5. Bin, Sheng, 2000. "The Political Economy of Trade Policy in China," Working Papers 10/2000, Copenhagen Business School, Department of Management, Politics & Philosophy. [Downloadable!]
  6. Sebastián Claro, 2004. "Vertical and Horizontal Dimensions of Trade Liberalization," Documentos de Trabajo 265, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  7. Sebastián Claro, 2002. "Tariff and FDI Liberalization: What to Expect from China´s Entry into the WTO?," Documentos de Trabajo 209, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  8. Cletus C. Coughlin & Eran Segev, 1999. "Foreign direct investment in China: a spatial econometric study," Working Papers 1999-001, Federal Reserve Bank of St. Louis. [Downloadable!]
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  9. Bruce Blonigen & Alyson Ma, 2007. "Please Pass the Catch-up The Relative Performance of Chinese and Foreign Firms in Chinese Exports," NBER Working Papers 13376, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Xing, Yuqing & Wan, Guanghua, 2004. "Exchange Rates and Competition for FDI," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  11. Patibandla, Murali, 2001. "Pattern of Foreign Direct Investment in Emerging Economies: An Exploration," Working Papers 1-2001, Copenhagen Business School, Department of International Economics and Management. [Downloadable!]
  12. Belderbos,R. & Carree,M., 2000. "The Location of Japanese Investments in China: Agglomeration Effects, Keiretsu, and Firm Heterogeneity," Research Memoranda 002, Maastricht : NIBOR, Netherlands Institute of Business Organization and Strategy Research. [Downloadable!]
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  13. Elissa Braunstein & Gerald Epstein, 2002. "Bargaining Power and Foreign Direct Investment in China: Can 1.3 Billion Consumers Tame the Multinationals?," SCEPA Working Papers 2002-13, Schwartz Center for Economic Policy Analysis (SCEPA), The New School. [Downloadable!]
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  14. Zhihong Yu & Yundan Gong & Sourafel Girma & Holger Görg, 2008. "Can production subsidies explain China's export performance? Evidence from firm level data," Kiel Working Papers 1442, Kiel Institute for the World Economy. [Downloadable!]
  15. Irene Brambilla, 2006. "Multinationals, Technology, and the Introduction of Varieties of Goods," NBER Working Papers 12217, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. John Whalley & Xian Xin, 2006. "China's FDI and Non-FDI Economies and the Sustainability of Future High Chinese Growth," NBER Working Papers 12249, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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