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Fdi And Spillovers In China: Non-Linearity And Absorptive Capacity

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Abstract

Using a fixed effect variance decomposition model, we estimate SUR models to analyze FDI spillovers from contagion and spillovers from competition on local firms in China. While the former type of spillover mainly depends on the degree of foreign presence in the local industry, the latter kind is related to how foreign and local firms interact. The main conclusion is that FDI has been beneficial for the Chinese economy, but that spillovers are not evenly distributed across firms and industries. Spillovers from contagion tend to exhibit an inverse U-shaped pattern with respect to the degree of foreign presence at the industry level, whereas spillovers from competition exhibit a more linear pattern with respect to the level of technological sophistication in foreign firms. Industries with high absorptive capacity and/or high efficiency are the ones best equipped to take advantage of spillovers from foreign-owned firms. Moreover, there are signs of substantial competition between foreign-owned firms: an increase in the foreign capital share in an industry seems to have a stronger effect on incumbent foreign-owned firms than on domestic firms.

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  • Chen , Taotao & Kokko, Ari & Gustavsson Tingvall, Patrik, 2010. "Fdi And Spillovers In China: Non-Linearity And Absorptive Capacity," Working Paper Series 2010-12, Stockholm School of Economics, China Economic Research Center.
  • Handle: RePEc:hhs:hacerc:2010-012
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    1. repec:eee:touman:v:54:y:2016:i:c:p:1-12 is not listed on IDEAS
    2. Monastiriotis, Vassilis, 2016. "Institutional proximity and the size and geography of FDI spillovers: do European firms generate more favourable productivity spillovers in the EU neighbourhood?," LSE Research Online Documents on Economics 66141, London School of Economics and Political Science, LSE Library.
    3. Wang, Daili, 2013. "鼓励还是抑制?初探外商直接投资与新民营企业进入
      [Foreign Direct Investment and the Entry of New Firms]
      ," MPRA Paper 50984, University Library of Munich, Germany.
    4. Cheryl Xiaoning Long & Galina Hale & Hirotaka Miura, 2014. "Productivity Spillovers from FDI in the People's Republic of China: A Nuanced View," Asian Development Review, MIT Press, vol. 31(2), pages 77-108, September.
    5. repec:wsi:serxxx:v:57:y:2012:i:02:n:s0217590812500117 is not listed on IDEAS
    6. Smruti Ranjan Behera & Pami Dua & Bishwanath Goldar, 2012. "Foreign Direct Investment And Technology Spillover: Evidence Across Indian Manufacturing Industries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 57(02), pages 1-23.
    7. Elisa Giuliani & Chiara Macchi, 2013. "Multinational Corporations’ Economic And Human Rights Impacts On Developing Countries: A Review And Research Agenda," Discussion Papers 2013/158, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

    More about this item

    Keywords

    Spillovers; China; FDI; Fixed effect variance decomposition;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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