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Are there productivity spillovers from foreign direct investment in China?

  • Galina Hale
  • Cheryl Long

We review previous literature on productivity spillovers of foreign direct investment (FDI) in China and conduct our own analysis using a firm-level data set from a World Bank survey. We find that the evidence of FDI spillovers on the productivity of Chinese domestic firms is mixed, with many positive results largely due to aggregation bias or failure to control for endogeneity of FDI. Attempting over 2500 specifications which take into account forward and backward linkages, we fail to find evidence of systematic positive productivity spillovers from FDI.spillovers from FDI. We do, however, find robust evidence that Chinese private firms tend to invest less in innovation in the presence of FDI. Combined with our previous findings that domestic private firms tend to be more involved in providing inputs and intermediary goods for foreign firms (Hale and Long, 2006), these results suggest a more passive role played by domestic firms in the global division of labor than envisioned by the Chinese government. ; Formerly titled: What determines technological spillovers of foreign direct investment: evidence from China

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2006-13.

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Date of creation: 2007
Date of revision:
Handle: RePEc:fip:fedfwp:2006-13
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  1. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2007. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 482-496, August.
  2. Wolfgang Keller & Stephen R. Yeaple, 2003. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," Working Papers 2003-06, Brown University, Department of Economics.
  3. Djankov, Simeon & Hoekman, Bernard, 1999. "Foreign investment and productivity growth in Czech enterprises," Policy Research Working Paper Series 2115, The World Bank.
  4. Holger Görg & Eric Strobl, 2004. "Spillovers from Foreign Firms through Worker Mobility: An Empirical Investigation," Discussion Papers of DIW Berlin 463, DIW Berlin, German Institute for Economic Research.
  5. Lutz, Stefan H. & Talavera, Oleksandr, 2003. "Do Ukrainian firms benefit from FDI," ZEI Working Papers B 04-2003, ZEI - Center for European Integration Studies, University of Bonn.
  6. Blomstrom, Magnus & Globerman, Steven & Kokko, Ari, 1999. "The determinants of host country spillovers from foreign direct investment: review and synthesis of the literature," SSE/EFI Working Paper Series in Economics and Finance 502, Stockholm School of Economics.
  7. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 495-513, December.
  8. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  9. Vinish Kathuria, 2000. "Productivity spillovers from technology transfer to Indian manufacturing firms," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 343-369.
  10. Hallward-Driemeier, Mary & Wallsten, Scott & Lixin Colin Xu, 2003. "The investment climate and the firm : firm-level evidence from China," Policy Research Working Paper Series 3003, The World Bank.
  11. Magnus Blomstrom & Jian-Ye Wang, 1989. "Foreign Investment and Technology Transfer: A Simple Model," NBER Working Papers 2958, National Bureau of Economic Research, Inc.
  12. Kokko, Ari & Tansini, Ruben & Zejan, Mario, 1994. "Productivity Spillovers from FDI in the Uruguayan Manufacturing Sector," SSE/EFI Working Paper Series in Economics and Finance 2, Stockholm School of Economics.
  13. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-73, September.
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