Bargaining Power and Foreign Direct Investment in China: Can 1.3 Billion Consumers Tame the Multinationals?

Abstract

Foreign direct investment (FDI) has become a much desired commodity by nations, regions and cities throughout the world. Indeed, governments bid for FDI because it is commonly thought to be an important engine of economic growth, job creation, and technological upgrading. The People's Republic of China (PRC), the developing world's largest recipient of FDI and one of the world's fastest growing economies, is often cited as evidence for the beneficial effects of FDI. Given the PRC's size and the huge allure of its cheap labor force and customer base, one would think that if any country had the bargaining power vis a vis multinational corporations to benefit from FDI, it would be China. But does FDI really deliver these commonly perceived benefits? To answer this question, we study the impact of inward FDI on wages, job creation, investment and tax generation in the PRC from 1986-1999 by running panel regression analysis on provincial level data. An innovation of our analysis is to distinguish the impact of FDI inflows from that of economic liberalization, per se. We find that, contrary to the conventional wisdom, inward FDI has a relatively small positive impact on wages and employment, while having a negative impact on domestic investment and tax revenue. We suggest that the decentralization of the FDI bidding process in China contributes to these negative outcomes, and argue that the limitation on FDI management tools associated with China's WTO entry is likely to further reduce the benefits of FDI for Chinese workers and citizens .

Uneven land reform and urban sprawl in China: the case of Beijing

“…For instance, although development zones are often intended or at least labeled for local economic development, especially in high technology, its real effect is doubtful given many studies that show limited or no effects of enterprise zones or science parks in the West (Erickson and Friedman, 1989;McDonald, 1993;Amirahmadi and Staff, 1993). Even foreign direct investment, which is often the official target of most development zones, may not be as important as often believed in economic development (Braunstein and Epstein, 2002). Although development zones may have helped the start of urban land reform and the emergence of real estate market, large-scale urban renewal in Chinese cities since mid-1990s is counter evidence of the efficacy of development zones' spatial location.…”

FDI, Skill-Specific Unemployment, and Institutional Spillover Effects

“…3 The aggregate consumption good is produced without costs and sold for an aggregate price level P . Prices and wages are jointly determined by upstream producers, workers, and downstream producers.…”

power and production: rethinking china’s global economic role

“…With China's entry into the WTO, this impact is expected to grow as investment is diverted from South East Asia to China. 61 Forecasts from the World Bank suggest that the closer a state's export profile to that of China, the more that state is expected to lose, with workers in the textile and apparel sectors in the region predicted to lose most. 62 Throughout Asia, this conception of China as a super-competitor is informing not only media debates, but also official policy.…”