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How Does FDI Affect Domestic Firms' Exports? Industrial Evidence

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  • Sizhong Sun

Abstract

Using a Heckman sample selection model estimated using pooled four-year firm-level data, this paper explores the export spillovers from the FDI in the cultural, educational and sporting product manufacturing industry of the manufacturing sector in China from 2000 to 2003. The manufacturing sector contributes around 40 per cent of the GDP in the Chinese economy, and the cultural, educational and sporting product manufacturing industry has a significant proportion of FDI activities, and firms in this sector are active in exporting. Through the empirical exercise, we find that there exist export spillovers from FDI in the industry, for which the magnitude depends on firms' geographical location, sale cost and revenue ratio, and ownership structure. On average, domestic firms located in Western China suffer from a foreign presence, irrespective of whether they are privately owned or state and collectively owned. For firms in Central China, both the privately owned and state and collectively owned firms appear to benefit from foreign presence. Regarding firms located in Coastal China, the privately owned firms suffer from the foreign presence, while in contrast the state and collectively owned firms benefit from the foreign presence. In addition, in this industry there are more firms that benefit from the presence of FDI than those that suffer, which to some extent justifies the government's policy to attract the FDI inflow. Copyright 2009 The Author. Journal compilation 2009 Blackwell Publishing Ltd.

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  • Sizhong Sun, 2009. "How Does FDI Affect Domestic Firms' Exports? Industrial Evidence," The World Economy, Wiley Blackwell, vol. 32(8), pages 1203-1222, August.
  • Handle: RePEc:bla:worlde:v:32:y:2009:i:8:p:1203-1222
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    1. Aitken, Brian & Hanson, Gordon H. & Harrison, Ann E., 1997. "Spillovers, foreign investment, and export behavior," Journal of International Economics, Elsevier, vol. 43(1-2), pages 103-132, August.
    2. Richard Kneller & Mauro Pisu, 2007. "Industrial Linkages and Export Spillovers from FDI," The World Economy, Wiley Blackwell, vol. 30(1), pages 105-134, January.
    3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    4. Wakelin, Katharine, 1998. "Innovation and export behaviour at the firm level," Research Policy, Elsevier, vol. 26(7-8), pages 829-841, April.
    5. Greenaway, David & Sousa, Nuno & Wakelin, Katharine, 2004. "Do domestic firms learn to export from multinationals?," European Journal of Political Economy, Elsevier, vol. 20(4), pages 1027-1043, November.
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