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Do institutions matter for FDI spillovers ? the implications of China's"special characteristics"

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  • Du, Luosha
  • Harrison, Ann
  • Jefferson, Gary

Abstract

The authors investigate how institutions affect productivity spillovers from foreign direct investment (FDI) to China's domestic industrial enterprises during 1998-2007. They examine three institutional features that comprise aspects of China's"special characteristics": (1) the different sources of FDI, where FDI is nearly evenly divided between mostly Organization for Economic Co-operation and Development (OECD) countries and Hong Kong (SAR of China), Taiwan (China), and Macau (SAR of China); (2) China's heterogeneous ownership structure, involving state- (SOEs) and non-state owned (non-SOEs) enterprises, firms with foreign equity participation, and non-SOE, domestic firms; and (3) industrial promotion via tariffs or through tax holidays to foreign direct investment. The authors also explore how productivity spillovers from FDI changed with China's entry into the WTO in late 2001. They find robust positive and significant spillovers to domestic firms via backward linkages (the contacts between foreign buyers and local suppliers). The results suggest varied success with industrial promotion policies. Final goods tariffs as well as input tariffs are negatively associated with firm-level productivity. However, they find that productivity spillovers were higher from foreign firms that paid less than the statutory corporate tax rate.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5757.

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Date of creation: 01 Aug 2011
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Handle: RePEc:wbk:wbrwps:5757

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Keywords: Emerging Markets; Debt Markets; Economic Theory&Research; Investment and Investment Climate; Labor Policies;

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Cited by:
  1. Bikash Ranjan Mishra, Dr., 2011. "Spill-over effects of foreign direct investment: an econometric study of Indian firms," MPRA Paper 37759, University Library of Munich, Germany.
  2. Krammer, Sorin, 2010. "Do good institutions enhance the effect of technological spillovers on productivity? Comparative evidence from developed and transition economies," MPRA Paper 53985, University Library of Munich, Germany, revised 07 Feb 2014.
  3. Jeon, Yongbok & Park, Byung Il & Ghauri, Pervez N., 2013. "Foreign direct investment spillover effects in China: Are they different across industries with different technological levels?," China Economic Review, Elsevier, Elsevier, vol. 26(C), pages 105-117.
  4. Fariha Kamal & Mary E. Lovely & Devashish Mitra, 2014. "Trade Liberalization And Labor Shares In China," Working Papers 14-24, Center for Economic Studies, U.S. Census Bureau.

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