Foreign direct investment (FDI) productivity in China

Abstract

Many papers recently published in top international management journals focus on productivity spillovers from foreign direct investment (FDI) to local firms in host countries in the developing world (see, for instance, Liu et al., 2000, 2001; Chung et al., 2006; Meyer, 2004; Buckley et al., 2007; Tian 2007). Some papers found positive FDI productivity spillovers through a competition effect, a linkage effect and an employment effect while others found negative FDI productivity spillovers in the form of 'market stealing' and 'skill stealing'. All the studies have no doubt made significant contributions to the understanding of the interaction between transnational companies (TNCs) and local firms in host countries. However, the studies have so far exclusively examined FDI productivity spillovers at the national level or FDI productivity spillovers within a region in a host country. No effort has been made to look at possible FDI productivity spillovers across regions within a host country. The widening of regional disparities found in developing countries that have recently opened up to FDI indicates a possibility of cross-region FDI productivity spillovers that are to the disadvantage of the poor region within the host countries. Since China opened up to FDI in the late 1970s, for instance, it has witnessed a remarkable widening of the disparities between the advanced coast region and the backward interior region, although the nation, as a whole, has seen phenomenal economic growth