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Are there productivity spillovers from foreign direct investment in China?

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  • Galina Hale
  • Cheryl Long

Abstract

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

Suggested Citation

  • Galina Hale & Cheryl Long, 2007. "Are there productivity spillovers from foreign direct investment in China?," Working Paper Series 2006-13, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2006-13
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    References listed on IDEAS

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