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Credit Constraints and FDI Spillovers in China

  • Natasha Agarwal
  • Chris Milner
  • Alejandro Riaño

This paper examines whether credit constraints affect Chinese firms’ absorption of productivity spillovers from foreign firms. Using firm-level data for 2001-2005, we find evidence of positive spillovers originating from FDI from countries other than Hong Kong, Macau and Taiwan for non-state owned Chinese firms operating in the same industry and province. Our main finding is that domestic firms operating in industries characterised by a greater reliance on external finance, our measure of credit constraints, enjoy lower (and even negative) spillovers from the activity of foreign-owned firms. This result is robust to the inclusion of a wide variety of other industry-level characteristics interacting with the activity of foreign firms.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4313.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4313
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