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Do Chinese domestic firms benefit from FDI inflow? Evidence of horizontal and vertical spillovers
China Economic Review (2009)
  • Ping LIN, Lingnan University, Hong Kong
  • Zhuomin LIU, University of Pittsburgh, United States
  • Yifan ZHANG, Lingnan University, Hong Kong
Abstract
Using a large panel dataset covering all manufacturing firms (above a minimum scale) in China from 1998 to 2005, this paper examines whether there exist productivity spillovers from foreign direct investment (FDI) to domestic firms. In estimating productivity, we control for a possible simultaneity bias by using semi-parametric estimation techniques. We find that Hong Kong, Macao and Taiwan (HMT) invested firms generate negative horizontal spillovers, while Non-HMT foreign invested firms (mostly from OECD countries) tend to bring positive horizontal spillovers in China. These two opposing horizontal effects seem to cancel out at the aggregate level. We also find strong and robust vertical spillover effects on both state-owned firms and non-state firms. However, vertical spillover effects from export-oriented FDI are weaker than those from domestic-market-oriented FDI.
Keywords
  • Foreign Direct Investment,
  • Spillovers,
  • China
Publication Date
December, 2009
DOI
10.1016/j.chieco.2009.05.010
Publisher Statement
Copyright © 2009 Elsevier Inc
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Citation Information
Lin, P., Liu, Z., & Zhang, Y. (2009). Do Chinese domestic firms benefit from FDI inflow? Evidence of horizontal and vertical spillovers. China Economic Review, 20(4), 677-691. doi: 10.1016/j.chieco.2009.05.010