Are There Productivity Spillovers from Foreign Direct Investment in China?

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.

Credit Constraints and FDI Spillovers in China

“…The lack of evidence of significant spillovers for state-owned firms is consistent with previous findings by Girma and Gong (2008) and Hale and Long (2011). Since we do not find evidence of productivity spillover benefits arising from foreign firms originating from HMT or accruing to state-owned firms, the remaining of the analysis will only focus on how the activity of non-HMT firms and affects the value-added of non-state-owned, domestic Chinese producers.…”

Direct and indirect effects of FDI in emerging European markets: A survey and meta-analysis

“…In this way the estimates of spillover effects obtained from aggregate regressions are subject to an upward Documents de Travail du Centre d'Economie de la Sorbonne -2010.24 aggregation bias. Aggregation bias can be avoided by excluding foreign firms from the aggregates or by using firm-level data (Hale and Long, 2007).…”

“…The best way to address this problem is to estimate a fixed-effect or difference-in-differences model with individual firm fixed effects (Hale and Long, 2007). One must also ensure that the panel includes a large enough time span because FDI do not vary much over time.…”

“…disturbances, they will be biased downward, mistakenly leading to a conclusion that the estimates are statistically significant even if they are not. This problem can be easily remedied by computing robust standard errors clustered on industry i (Hale and Long, 2007).…”

FDI technology spillovers, geography, and spatial diffusion

“…The externalities arising from FDI penetration also have long received great attentions from both economists and policy makers. Although the previous literature has provided some evidence of FDI spillovers at both firm and industry levels (Lin et al, 2009;Abraham et al, 2010;Hale and Long, 2011;Xu and Sheng, 2012;Damijan et al, 2013;Merlevede et al, 2014; among other earlier contributions), little is known about the extent to which the regional presence of FDI affects the aggregate productivity of local private firms in spatial dimension. This paper studies FDI spatial spillovers using countylevel data supplemented with precise GPS information of China.…”