Foreign Direct Investment in China: Reward or Remedy?
This paper tests the significance of FDI as a way to alleviate credit constraints. Incoming foreign investment provides additional sources of capital. Specifically in the Chinese case, enterprises may look for foreign investors, being constrained in their activity due to distortions in the state-dominated system. First, the Chinese financial system allocates resources to the least efficient firms - state-owned enterprises - while denying the same resources to Chinese private enterprises, forcing them to look for a foreign investor. Second, the inefficient system of state investment planning leads to mismanagement of public enterprises, increasing 'insolvency-induced FDI'. We propose to analyse determinants of FDI in Chinese provinces to test the above hypotheses. We control for traditional determinants of FDI such as market access, labour costs, productivity, infrastructure, reform advances and banking sector size in order to assess the impact of inter-provincial heterogeneity in terms of the access that private enterprises have to credit and the distortive management in state-owned firms. Copyright 2007 The Authors Journal compilation 2007 Blackwell Publishing Ltd .
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Volume (Year): 30 (2007)
Issue (Month): 11 (November)
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- Fung, K. C. & Garcia-Herrero, Alicia & Iizaka, Hitomi & Siu, Alan, 2005.
"Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China,"
Santa Cruz Center for International Economics, Working Paper Series
qt9377h519, Center for International Economics, UC Santa Cruz.
- K. C. Fung & Alicia Garcia-Herrero & Hitomi Iizaka & Alan Siu, 2005. "Hard Or Soft? Institutional Reforms And Infrastructure Spending As Determinants Of Foreign Direct Investment In China," The Japanese Economic Review, Japanese Economic Association, vol. 56(4), pages 408-416.
- K. C. Fung & Alicia García-Herrero & Hitomi Iizaka & Alan Siu, 2006. "Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China," Working Papers 0616, Banco de España;Working Papers Homepage.
- Fung, K. C. & Garcia-Herrero, Alicia & Iizaka, Hitomi & Siu, Alan, 2005. "Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China," Santa Cruz Department of Economics, Working Paper Series qt9377h519, Department of Economics, UC Santa Cruz.
- Fung, K. C. & Garcia-Herrero, Alicia & Iizaka, Hitomi & Siu, Alan, 2005. "Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China," Santa Cruz Department of Economics, Working Paper Series qt3w23p8c8, Department of Economics, UC Santa Cruz.
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