Abstract
ABSTRACTThis article investigates the effects of institutions on FDI spillovers considering firm heterogeneity and various spillover mechanisms. We test our hypotheses using data on Chinese manufacturing firms from 1998 to 2013. We find that intellectual property rights protection lowers the positive demonstration effect of FDI on local productivity, while such negative effect is smaller for local firms with higher technological competence. Government interference reduces the negative competition effect of FDI on the productivity of local firms and this effect is even stronger for state-owned firms. For firms with high relationship-specificity, vertical spillovers through the backward and forward linkages are larger in regions with better rule of law.
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