Using a large panel dataset covering all manufacturing firms (above a minimum Scale) in China from 1998 to 2005, this paper examines whether there exist productivity spillovers from foreign direct investment (FDI) to domestic firms. In estimating productivity, we control for a Possible simultaneity bias by using semi-parametric estimation techniques. We find that Hong Kong, Macao and Taiwan (HMT) invested fit ins generate negative horizontal spillovers, while Non-HMT foreign invested firms (mostly from OECD countries) tend to bring positive horizontal spillovers in China. These two opposing horizontal effects seem to cancel out at the aggregate level. We also find strong and robust vertical spillover effects oil both state-owned firms and non-state firms. However, vertical spillover effects from export-oriented FDI are weaker than those from domestic-market-oriented FDI.
Bibliographical noteWe would like to thank co-editor Jeffrey Zax and an anonymous referee for their useful suggestions which improved the quality of the paper substantially. We would also like to thank Daniel Berkowitz, Loren Brandt, K. Y. Cheung, Deborah Davis, Simon Fan, Ying Fang, Lok-Sang Ho, Chang-Tai Hsieh, Yasheng Huang, W. L. Lai, Thomas Rawski, Christopher Udry, Thomas Voon, and Xiangdong Wei, and seminar participants at Lingnan University, University of Pittsburgh and Yale University for their helpful comments and discussions. Financial support from Lingnan University is acknowledged (Funding # DR07B4).
- Foreign direct investment