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FDI Spillovers and Industrial Policy: The Role of Tariffs and Tax Holidays

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

Abstract

This paper examines how industrial policy – specifically tariff liberalization and tax subsidies – affects the magnitude and direction of FDI spillovers. We examine these spillover effects across the diverse ownership structure of China’s manufacturing sector for 1998 through 2007. We find that tariff reforms, particularly tariff reductions associated with China’s WTO ascension, increased the productivity impacts of FDI’s backward spillovers. Tax policy – both corporate income and VAT subsidies – has seemingly drawn FDI into strategic industries that spawn significant vertical spillovers. We conclude that liberalization measures during the critical 1998–2007 period on balance served to enhance productivity growth in Chinese industry.

Suggested Citation

  • Du, Luosha & Harrison, Ann & Jefferson, Gary, 2014. "FDI Spillovers and Industrial Policy: The Role of Tariffs and Tax Holidays," World Development, Elsevier, vol. 64(C), pages 366-383.
  • Handle: RePEc:eee:wdevel:v:64:y:2014:i:c:p:366-383 DOI: 10.1016/j.worlddev.2014.06.005
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    Citations

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    Cited by:

    1. Lipsey, Robert E. & Sjöholm, Fredrik, 2011. "South–South FDI and Development in East Asia," Asian Development Review, Asian Development Bank, vol. 28(2), pages 11-31.
    2. Philippe Aghion & Jing Cai & Mathias Dewatripont & Luosha Du & Ann Harrison & Patrick Legros, 2015. "Industrial Policy and Competition," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 1-32, October.
    3. Theodore H. Moran, 2014. "Foreign Investment and Supply Chains in Emerging Markets: Recurring Problems and Demonstrated Solutions," Working Paper Series WP14-12, Peterson Institute for International Economics.
    4. 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, vol. 26(C), pages 105-117.
    5. Michele Imbruno, 2015. "Firm efficiency and Input market integration Trade versus FDI," FIW Working Paper series 154, FIW.
    6. Farole, Thomas & Winkler, Deborah, 2012. "Foreign firm characteristics, absorptive capacity and the institutional framework : the role of mediating factors for FDI spillovers in low- and middle-income countries," Policy Research Working Paper Series 6265, The World Bank.
    7. Ha, Yoo Jung & Giroud, Axèle, 2015. "Competence-creating subsidiaries and FDI technology spillovers," International Business Review, Elsevier, vol. 24(4), pages 605-614.
    8. Theodore H Moran, 2016. "The Role of Industrial Policy as a Development Tool: New Evidence from the Globalization of Trade-and-Investment," Working Papers id:8423, eSocialSciences.
    9. Andrea Ciani & Michele Imbruno, 2017. "Microeconomic mechanisms behind export spillovers from FDI: evidence from Bulgaria," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(4), pages 703-734, November.
    10. Weiwei Liu & Xiandong Xu & Zhile Yang & Jianyu Zhao & Jing Xing, 2016. "Impacts of FDI Renewable Energy Technology Spillover on China’s Energy Industry Performance," Sustainability, MDPI, Open Access Journal, vol. 8(9), pages 1-16, August.
    11. Estrin, Saul & Pelletier, Adeline, 2016. "Privatisation in Developing Countries: What Are the Lessons of Recent Experience?," IZA Discussion Papers 10297, Institute for the Study of Labor (IZA).
    12. Winkler, Deborah, 2013. "Potential and actual FDI spillovers in global value chains : the role of foreign investor characteristics, absorptive capacity and transmission channels," Policy Research Working Paper Series 6424, The World Bank.
    13. Mitsuo Inada, 2013. "The Effects of Foreign Direct Investment on Industrial Growth: Evidence from a Regulation Change in China," KIER Working Papers 856, Kyoto University, Institute of Economic Research.
    14. Xu, Xinpeng & Sheng, Yu, 2012. "Productivity Spillovers from Foreign Direct Investment: Firm-Level Evidence from China," World Development, Elsevier, vol. 40(1), pages 62-74.
    15. Harrison, Ann & Sepulveda, Claudia, 2011. "Learning from developing country experience : growth and economic thought before and after the 2008-09 crisis," Policy Research Working Paper Series 5752, The World Bank.

    More about this item

    Keywords

    foreign direct investment; industrial policy; manufacturing productivity; China; spillovers;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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