IDEAS home Printed from https://ideas.repec.org/p/mit/sloanp/7402.html
   My bibliography  Save this paper

A Tale of Two Provinces: The Institutional Environment and Foreign Ownership in China

Author

Listed:
  • Huang, Yasheng
  • Di, Wenhua

Abstract

In this paper, we use a unique dataset covering joint ventures in two provinces of China, Jiangsu and Zhejiang, to test the effect of the institutional environment for domestic private firms on ownership structures of FDI projects. Unlike many studies on this subject, we approach the issue from the perspective of local firms seeking FDI rather than from the perspective of foreign firms seeking to invest in China. Applying the prevailing bargaining framework in studies on ownership structures of FDI projects, we find that a more liberal institutional environment for domestic private firms is associated with less foreign ownership of the joint ventures operating there. Several mechanisms can contribute to this outcome. One is that a more liberal institutional environment may enhance the bargaining power of those domestic firms negotiating with foreign firms to form alliances (the capability effect). The other mechanism is that a more liberal institutional environment may reduce some of the auxiliary benefits associated with FDI - such as greater property rights granted to foreign investors - and thereby attenuate incentive to form alliances with foreign firms (the incentive effect).

Suggested Citation

  • Huang, Yasheng & Di, Wenhua, 2004. "A Tale of Two Provinces: The Institutional Environment and Foreign Ownership in China," Working papers 4482-04, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  • Handle: RePEc:mit:sloanp:7402
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/1721.1/7402
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    2. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth; A Summary of the Recent Literature," IMF Working Papers 01/175, International Monetary Fund.
    3. Elizabeth Asiedu & Hadi Salehi Esfahani, 2001. "Ownership Structure In Foreign Direct Investment Projects," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 647-662, November.
    4. Jan Svejnar & Stephen C. Smith, 1984. "The Economics of Joint Ventures in Less Developed Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 99(1), pages 149-167.
    5. Yigang Pan & David K Tse, 1996. "Cooperative Strategies between Foreign Firms in an Overseas Country," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(5), pages 929-946, December.
    6. Yigang Pan & Shaomin Li & David K Tse, 1999. "The Impact of Order and Mode of Market Entry on Profitability and Market Share," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 30(1), pages 81-103, March.
    7. Kobrin, Stephen J., 1987. "Testing the bargaining hypothesis in the manufacturing sector in developing countries," International Organization, Cambridge University Press, vol. 41(04), pages 609-638, September.
    8. Hehui Jin & Yingyi Qian, 1998. "Public Versus Private Ownership of Firms: Evidence from Rural China," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 773-808.
    9. Benjamin Gomes-Casseres, 1990. "Firm Ownership Preferences and Host Government Restrictions: An Integrated Approach," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 21(1), pages 1-22, March.
    10. Park, Albert & Shen, Minggao, 2003. "Joint liability lending and the rise and fall of China's township and village enterprises," Journal of Development Economics, Elsevier, vol. 71(2), pages 497-531, August.
    11. Yingyi Qian, 1999. "The Institutional Foundations of China's Market Transition," Working Papers 99011, Stanford University, Department of Economics.
    12. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
    13. Yigang Pan, 1996. "Influences on Foreign Equity Ownership Level in Joint Ventures in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(1), pages 1-26, March.
    14. Yigang Pan & David K Tse, 1996. "Cooperative Strategies between Foreign Firms in an Overseas Country," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(4), pages 929-946, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. World Bank, 2006. "Foreign Capital Utilization in China : Prospects and Future Strategy," World Bank Other Operational Studies 19623, The World Bank.
    2. Kishor Sharma & Wei Wang, 2014. "Foreign Investment and Vertical Specialisation: An Analysis of Emerging Trends in Chinese Exports," Proceedings of Economics and Finance Conferences 0401580, International Institute of Social and Economic Sciences.
    3. Wubiao Zhou, 2014. "Regional institutional development, political connections, and entrepreneurial performance in China’s transition economy," Small Business Economics, Springer, vol. 43(1), pages 161-181, June.

    More about this item

    Keywords

    China; FDI; private sector; institutional environment; joint venture;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mit:sloanp:7402. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/ssmitus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.