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Fiscal decentralization and multinational firms’ ownership: evidence from China

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  • Shih-Ying Wu
  • Mei-Jane Teng

Abstract

China’s fiscal decentralization increases the incentive for local governments to maintain economic prosperity and improve institutional environments for multinational firms. This study investigates the impact of fiscal decentralization on the ownership shares of multinational firms in China. Multinational firms located in regions with higher degrees of fiscal decentralization are found to own larger shares of their foreign subsidiaries. This result is consistent under various robustness checks, including instrumental variables estimations. The finding suggests that multinational firms respond to local fiscal decentralization by increasing their participation in investment. This study therefore provides additional evidence for the beneficial effect of fiscal decentralization on China’s economic growth by highlighting the risk-mitigating role of fiscal decentralization. Copyright Springer-Verlag 2012

Suggested Citation

  • Shih-Ying Wu & Mei-Jane Teng, 2012. "Fiscal decentralization and multinational firms’ ownership: evidence from China," Economics of Governance, Springer, vol. 13(3), pages 237-262, September.
    • Handle: RePEc:spr:ecogov:v:13:y:2012:i:3:p:237-262
    DOI: 10.1007/s10101-012-0108-8
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    Cited by:

    1. Yang Zhou, 2022. "Economic institutions and horizontal checks and balances in the Chinese bureaucratic system: evidence at the prefecture-city level," Economics of Governance, Springer, vol. 23(2), pages 133-160, June.

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    More about this item

    Keywords

    Fiscal decentralization; Institutional environment; Multinational firm; Entry mode; H71; H73; O24;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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