When Do Local Firms Benefit from Inward Foreign Direct Investment? A Longitudinal Study of China's Manufacturing Sector Covering 1998-2007

摘要

Using comprehensive panel data on manufacturing firms in China during the 1998-2007 period, this study examines whether and when recipient local firms benefi from foreign direct investment (FDI). Local firms' productivity improvements by the presence of foreign entrants are estimated, and according to the results, the relationship between FDI and local firms' productivity shows an inverted U-shaped pattern, with productivity increasing up to a certain point beyond which a higher level of FDI reduces local firms' productivity. More importantly, the U-shaped pattern is found for FDI from both non-HMT foreign firms and overseas Chinese HMT (Hong Kong, Macao, and Taiwan) firms. In addition, the U-shaped pattern varies across subnational regions such that the threshold at which an increase in FDI reduces productivity is lower for indigenous firms in coastal regions. This suggests that in China, local firms in inland and rural regions are the top beneficiaries of spillover effects.