Is There Evidence of FDI Spillover on Chinese Firms' Productivity and Innovation?

37 Pages Posted: 20 Apr 2006

See all articles by Galina Hale

Galina Hale

University of California, Santa Cruz

Cheryl Long

Colgate University - Economics Department

Date Written: January 2007

Abstract

We review previous literature on productivity spillovers of foreign direct investment (FDI) in China and conduct our own analysis using a cross--section of firm data. 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 find no evidence of systematic positive productivity 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.

Keywords: FDI spillovers, institutions, SOE, privatization, China

JEL Classification: L33, F23, O17

Suggested Citation

Hale, Galina and Long, Cheryl Xiaoning, Is There Evidence of FDI Spillover on Chinese Firms' Productivity and Innovation? (January 2007). Yale University Economic Growth Center Discussion Paper No. 934, Available at SSRN: https://ssrn.com/abstract=897782

Galina Hale (Contact Author)

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Cheryl Xiaoning Long

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
United States

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