The impact of two-way FDI on total factor productivity in China and countries of the belt and road initiative

Abstract

This study utilizes the DEA-Malmquist index method to measure the total factor productivity of 36 Belt and Road countries and establish a dynamic panel model. This study carries out an empirical analysis of whether two-way investment in China and the Belt and Road Initiative can improve total factor productivity. First, the technology spillover of the home country has a significant effect on improving total factor productivity and the technical efficiency index of countries along the route, while the technology spillover of host countries has no significant effect on total factor productivity. Second, in Asia, the technology spillover of host countries has a significant effect on total factor productivity, while the technology spillover of the home country has no significant effect on total factor productivity. Finally, in Europe, the spillover effect of technology in the home country is beneficial to the improvement of resource allocation. Meanwhile, the spillover effect of technology in host countries is beneficial to the improvement of total factor productivity and the technical efficiency index. Therefore, China should continue to increase its investment in Belt and Road countries.