Are FDI spillovers regional? Firm-level evidence from China

Abstract

This paper examines whether spillovers from FDI occur at the national or regional level, using firm-level census data for the Chinese manufacturing industry between 2000 and 2003. We find that FDI provides significant positive spillovers for the productivity of firms in the same industry, but these spillovers are likely to be regional; that is, domestic firms benefit more from the presence of foreign firms in the same sector within the same region. The backward and forward linkage effects of FDI are negative with significant regional disparity. The geographic distribution of FDI also influences spillovers, with an increase in FDI inflow to the top FDI recipient provinces increasing the forward linkage spillovers. Our empirical results also suggest that domestic firms differ significantly in the extent to which they benefit from FDI, though domestic firms with high absorptive capacity are more likely to benefit from FDI.