Do Institutions Matter for FDI Spillovers? The Implications of China’s “Special Characteristics”

Do Institutions Matter for FDI Spillovers? The Implications of China’s “Special Characteristics”

The authors investigate how institutions affect productivity spillovers from foreign direct investment (FDI) to China's domestic industrial enterprises during 1998-2007. They examine three institutional features that comprise aspects of China&...

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Bibliographic Details
Main Authors:	Du, Luosha, Harrison, Ann, Jefferson, Gary
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	AFFILIATED ORGANIZATIONS ANNUAL SALES BANK POLICY BUDGET CONSTRAINTS CAPITAL ACCUMULATION CAPITAL SHARE CAPITAL STOCK CONSUMERS CORPORATE TAX CORPORATE TAX RATE CORPORATE TAX RATES COUNTRY MARKETS DEFLATORS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DIRECT FOREIGN INVESTMENT DOMESTIC COMPETITORS DOMESTIC INVESTORS DOMESTIC MARKET DOMESTIC MARKETS DUMMY VARIABLE DUMMY VARIABLES ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC RESEARCH EFFICIENCY BENEFITS ELASTICITY EQUIPMENT EXPENDITURES EXPORTERS EXPORTS EXPOSURE EXTERNALITIES EXTERNALITY FINANCIAL CAPITAL FIRM PERFORMANCE FIXED ASSETS FIXED INVESTMENT FOREIGN ASSET FOREIGN ASSETS FOREIGN BUYERS FOREIGN CAPITAL FOREIGN DIRECT INVESTMENT FOREIGN EQUITY FOREIGN FIRMS FOREIGN INVESTMENT FOREIGN INVESTORS FOREIGN OWNERSHIP FOREIGN SHARE FOREIGN SHARES GLOBALIZATION GROWTH RATES HOST COUNTRY INCOME INCOME TAX INCOME TAXES INDUSTRIAL ECONOMICS INDUSTRIALIZATION INEFFICIENCY INNOVATION INSTRUMENT INSURANCE INTELLECTUAL PROPERTY INTERNATIONAL BANK INTERNATIONAL COMPETITION INTERNATIONAL ECONOMICS INTERNATIONAL MARKETS INTERNATIONAL TRADE INVESTMENT DECISION INVESTMENT FUNCTION INVESTMENT PROCESS JOINT VENTURE JOINT VENTURES LIBERALIZATION MANUFACTURING INDUSTRIES MANUFACTURING INDUSTRY MARKET SHARE MOTIVATION MULTINATIONAL FIRMS NET CAPITAL OUTPUT OWNERSHIP STRUCTURE PERFECT COMPETITION POSITIVE COEFFICIENT POSITIVE COEFFICIENTS POSITIVE EFFECTS POSITIVE EXTERNALITIES PRICE LEVELS PRODUCTION FUNCTION PRODUCTION FUNCTIONS PRODUCTIVITY PRODUCTIVITY GROWTH PRODUCTIVITY INCREASES PROPERTY RIGHTS RETURN RETURNS RETURNS TO SCALE STATE ENTERPRISES STATUTORY TAX RATE STRUCTURAL CHANGE SUPPLIERS TARIFF BARRIERS TAX TAX BREAK TAX BREAKS TAX CONCESSIONS TAX INCENTIVES TAX POLICIES TAX POLICY TAX RATE TAX RATES TAX SUBSIDIES TAX SUBSIDY TECHNOLOGY TRANSFER TOTAL FACTOR PRODUCTIVITY TOTAL FACTOR PRODUCTIVITY GROWTH TOTAL OUTPUT TRADE LIBERALIZATION TRADE POLICIES TRADE POLICY TRADING UNEMPLOYMENT VALUE ADDED WAGES WORLD ECONOMY WTO
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110815095155 http://hdl.handle.net/10986/3518

Description
Summary:	The authors investigate how institutions affect productivity spillovers from foreign direct investment (FDI) to China's domestic industrial enterprises during 1998-2007. They examine three institutional features that comprise aspects of China's "special characteristics": (1) the different sources of FDI, where FDI is nearly evenly divided between mostly Organization for Economic Co-operation and Development (OECD) countries and Hong Kong (SAR of China), Taiwan (China), and Macau (SAR of China); (2) China's heterogeneous ownership structure, involving state- (SOEs) and non-state owned (non-SOEs) enterprises, firms with foreign equity participation, and non-SOE, domestic firms; and (3) industrial promotion via tariffs or through tax holidays to foreign direct investment. The authors also explore how productivity spillovers from FDI changed with China's entry into the WTO in late 2001. They find robust positive and significant spillovers to domestic firms via backward linkages (the contacts between foreign buyers and local suppliers). The results suggest varied success with industrial promotion policies. Final goods tariffs as well as input tariffs are negatively associated with firm-level productivity. However, they find that productivity spillovers were higher from foreign firms that paid less than the statutory corporate tax rate.

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