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FDI Technology Spillovers and Spatial Diffusion in the People’s Republic of China

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  • Lin, Mi

    ()
    (University of Lincoln)

  • Kwan, Yum K.

    ()
    (Department of Economics & Finance, City University of Hong Kong)

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Abstract

This paper investigates the geographic extent of foreign direct investment (FDI) technology spillovers and diffusion in the People’s Republic of China (PRC). We employ spatial dynamic panel econometric techniques to detect total factor productivity (TFP) innovation clusters, uncover the spatial extent of technology diffusion, and quantify both the temporal and spatial dimensions of FDI spillovers. Our empirical results show that FDI presence (measured as employment share) in a locality will generate negative and significant impacts on the productivity performance of domestic private firms in the same location. Nevertheless, these negative intra-regional spillovers are found to be locally bounded. Domestic private firms enjoy positive FDI spillovers through interregional technology diffusion via labor market channels; these interregional spillovers appear in spatial feedback loops among higher-order neighboring regions. In the long run, the positive interregional spillovers outweigh the negative intra-regional spillovers, bestowing beneficiary total effects on domestic firms through labor market channels. FDI spillovers measured as sales income share, however, are negative in both intra-regional and interregional dimensions.

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File URL: http://aric.adb.org/pdf/workingpaper/WP120_Lin_Kwan_FDI_Technology_Spillovers.pdf
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Bibliographic Info

Paper provided by Asian Development Bank in its series Working Papers on Regional Economic Integration with number 120.

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Length: 48 pages
Date of creation: 01 Nov 2013
Date of revision:
Handle: RePEc:ris:adbrei:0120

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Keywords: FDI spillovers; spatial diffusion; spatial dynamic panel; PRC economy;

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  1. Cyn-Young Park & Ruperto P. Majuca & Josef T. Yap, 2010. "The 2008 Financial Crisis and Potential Output in Asia : Impact and Policy Implications," Finance Working Papers 23101, East Asian Bureau of Economic Research.
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