Productivity Spillovers from Foreign Direct Investment: Firm-Level Evidence from China

• DOI: 10.1016/j.worlddev.2011.05.006
• Publication Date: 2011-06-28T01:52:43Z
• Authors: Xinpeng Xu; Yu Sheng
• Keywords: China; productivity; 9. Industry and infrastructure; 0502 economics and business; 05 social sciences; 8. Economic growth; foreign direct investment; spillover effect; Spillover effects; Keywords: firm ownership; China Asia

Summary Using firm-level census data, this paper examines the spillover effects of foreign direct investment (FDI) on domestic firms in the Chinese manufacturing industry between 2000 and 2003. Our analysis takes into account the endogeniety of input choices, simultaneity bias, and clustering errors that are known to cause biased and inefficient estimations. Our results suggest that positive spillovers from FDI arise from forward linkages where domestic firms purchase high-quality intermediate goods or equipment from foreign firms in the upstream sectors. Our results also show that domestic firms differ significantly in the extent to which they benefit from FDI.