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Economic Fragmentation and FDI in China

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  • Yasheng Huang
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    Abstract

    China is one of the most popular investment destinations in the world. This paper argues that FDI inflows into China are in fact driven by some fundamental inefficiencies in the Chinese economy. Specifically, one of the inefficiencies has to do with a high level of fragmentation of both goods and asset markets. This fragmentation increases demand for FDI both because market fragmentation makes indigenous Chinese firms uncompetitive and because market fragmentation creates more investment opportunities for the mobile foreign capital. This paper is a chapter from a larger book-length research project, tentatively entitled, Selling China: The Institutional Foundation of Foreign Direct Investment During the Reform Era.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp374.pdf
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    Bibliographic Info

    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 374.

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    Length: pages
    Date of creation: 01 May 2001
    Date of revision:
    Handle: RePEc:wdi:papers:2001-374

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    Keywords: FDI; capital market; transitional economies;

    This paper has been announced in the following NEP Reports:

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    1. Qian, Yingyi & Xu, Chenggang, 1993. "The M-form hierarchy and China's economic reform," European Economic Review, Elsevier, vol. 37(2-3), pages 541-548, April.
    2. Lardy,Nicholas R., 1978. "Economic Growth and Distribution in China," Cambridge Books, Cambridge University Press, number 9780521219044, April.
    3. Pryor, Frederic L, 1972. "An International Comparison of Concentration Ratios," The Review of Economics and Statistics, MIT Press, vol. 54(2), pages 130-40, May.
    4. Xiaonian Xu & Yan Wang, 1997. "Ownership structure, corporate governance, and corporate performance : the case of Chinese stock companies," Policy Research Working Paper Series 1794, The World Bank.
    5. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
    6. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
    7. Kobrin, Stephen J., 1987. "Testing the bargaining hypothesis in the manufacturing sector in developing countries," International Organization, Cambridge University Press, vol. 41(04), pages 609-638, September.
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