Spatial Distribution of Foreign Direct Investment and Productivity Growth in Less Developed Regions of China
Author(s)
Yanqing Jiang
Affiliation(s)
School of Economics and Finance, Shanghai International Studies University, Shanghai, China.
School of Economics and Finance, Shanghai International Studies University, Shanghai, China.
ABSTRACT
This study examines how the spatial distribution of foreign direct investment (FDI) affects productivity growth in less developed regions of China. A systematic theoretical framework is set up concerning the potential effects of FDI capital via different channels. Following the theoretical framework, this study presents empirical evidence showing that FDI spillovers from the developed regions play a crucial role in enhancing productivity growth in the less developed regions. Empirical results also show that local FDI spillovers in less developed regions promote local productivity growth. In addition, FDI spillovers from less developed regions are not shown to have a significant effect on productivity growth in other less developed regions.
This study examines how the spatial distribution of foreign direct investment (FDI) affects productivity growth in less developed regions of China. A systematic theoretical framework is set up concerning the potential effects of FDI capital via different channels. Following the theoretical framework, this study presents empirical evidence showing that FDI spillovers from the developed regions play a crucial role in enhancing productivity growth in the less developed regions. Empirical results also show that local FDI spillovers in less developed regions promote local productivity growth. In addition, FDI spillovers from less developed regions are not shown to have a significant effect on productivity growth in other less developed regions.
Cite this paper
Jiang, Y. (2014) Spatial Distribution of Foreign Direct Investment and Productivity Growth in Less Developed Regions of China. American Journal of Industrial and Business Management, 4, 644-656. doi: 10.4236/ajibm.2014.411070.
Jiang, Y. (2014) Spatial Distribution of Foreign Direct Investment and Productivity Growth in Less Developed Regions of China. American Journal of Industrial and Business Management, 4, 644-656. doi: 10.4236/ajibm.2014.411070.
References
[1] Fung, K.C., Iizaka, H. and Tong, S.Y. (2004) FDI in China: Policy, Recent Trend and Impact. Global Economic Review, 33, 99-130. http://dx.doi.org/10.1080/12265080408449850 [2] Yin, H. (2011) Characteristics of Inter-Regional Income Disparities in China. Social Sciences in China, 32, 123-144. http://dx.doi.org/10.1080/02529203.2011.598305 [3] Zhu, S., Lai, M. and Fu, X. (2008) Spatial Characteristics and Dynamics of Provincial Total Factor Productivity in China. Journal of Chinese Economic and Business Studies, 6, 197-217.
http://dx.doi.org/10.1080/14765280802028328 [4] Cheung, K. and Lin, P. (2004) Spillover Effects of FDI on Innovation in China: Evidence from the Provincial Data. China Economic Review, 15, 25-44.
http://dx.doi.org/10.1016/S1043-951X(03)00027-0 [5] Zhang, K.H. (2006) Foreign Direct Investment and Economic Growth in China: A Panel Data Study for 1992-2004, Conference of WTO. China and Asian Economies, University of International Business and Economics, Beijing. [6] Ouyang, P. and Fu, H. (2012) Economic Growth, Local Industrial Development and Inter-Regional Spillovers from Foreign Direct Investment: Evidence from China. China Economic Review, 23, 445-460. http://dx.doi.org/10.1016/j.chieco.2012.03.005 [7] Madariaga, N. and Poncet, S. (2007) FDI in Chinese Cities: Spillovers and Impact on Growth. The World Economy, 30, 837-862. http://dx.doi.org/10.1111/j.1467-9701.2007.01025.x [8] Borensztein, E., De Gregorio, J. and Lee, J. (1998) How Does Foreign Direct Investment Affect Economic Growth? Journal of International Economics, 45, 115-135.
http://dx.doi.org/10.1016/S0022-1996(97)00033-0 [9] Kuo, C. and Yang, C. (2008) Knowledge Capital and Spillover on Regional Economic Growth: Evidence from China. China Economic Review, 19, 594-604. http://dx.doi.org/10.1016/j.chieco.2008.06.004 [10] Aitken, B.J. and Harrison, A.E. (1999) Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela. American Economic Review, 89, 605-618.
http://dx.doi.org/10.1257/aer.89.3.605 [11] Djankov, S. and Hoekman, B. (2000) Foreign Investment and Productivity Growth in Czech Enterprises. World Bank Economic Review, 14, 49-64. http://dx.doi.org/10.1093/wber/14.1.49 [12] Keller, W. and Yeaple, S.R. (2009) Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States. Review of Economics and Statistics, 91, 821-831. http://dx.doi.org/10.1162/rest.91.4.821 [13] Javorcik, B.S. (2004) Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages. American Economic Review, 94, 605-627.
http://dx.doi.org/10.1257/0002828041464605 [14] Kugler, M. (2006) Spillover from Foreign Direct Investment: Within or between Industries. Journal of Development Economics, 80, 444-477. http://dx.doi.org/10.1016/j.jdeveco.2005.03.002 [15] Liu, Z.Q. (2008) Foreign Direct Investment and Technology Spillovers: Theory and Evidence. Journal of Development Economics, 85, 176-193. http://dx.doi.org/10.1016/j.jdeveco.2006.07.001 [16] Kokko, A. (1996) Productivity Spillovers from Competition between Local Firms and Foreign Affiliates. Journal of International Development, 8, 517-530.
http://dx.doi.org/10.1002/(SICI)1099-1328(199607)8:4<517::AID-JID298>3.0.CO;2-P [17] Glass, A.J. and Saggi, K. (1998) International Technology Transfer and the Technology Gap. Journal of Development Economics, 55, 369-398. http://dx.doi.org/10.1016/S0304-3878(98)00041-8 [18] Girma, S., Greenaway, D. and Wakelin, K. (2001) Who Benefits from Foreign Direct Investment in the UK? Scottish Journal of Political Economy, 48, 119-133. http://dx.doi.org/10.1111/1467-9485.00189 [19] Girma, S. and Görg, H. (2002) Foreign Direct Investment, Spillovers and Absorptive Capacity: Evidence from Quantile Regressions. GEP Research Paper 02/14, University of Nottingham, Nottingham. [20] Girma, S. (2005) Absorptive Capacity and Productivity Spillovers from FDI: A Threshold Regression Analysis. Oxford Bulletin of Economics and Statistics, 67, 281-306.
http://dx.doi.org/10.1111/j.1468-0084.2005.00120.x [21] Girma, S. and Wakelin, K. (2002) Are There Regional Spillovers from FDI in the UK? GEP Research Paper, No. 16, University of Nottingham, Nottingham. [22] Hale, G. and Long, C. (2006) FDI Spillovers and Firm Ownership in China: Labor Markets and Backward Linkages. Federal Reserve Bank of San Francisco Working Paper Series No. 25, San Francisco. [23] Girma, S. and Gong, Y. (2008) FDI, Linkages and the Efficiency of State-Owned Enterprises in China. Journal of Development Studies, 44, 728-749. http://dx.doi.org/10.1080/00220380802009233 [24] Brun, J., Combes, J. and Renard, M. (2002) Are There Spillover Effects between Coastal and Non-Coastal Regions in China? China Economic Review, 13, 161-169.
http://dx.doi.org/10.1016/S1043-951X(02)00070-6 [25] Fujita, M. and Hu, D. (2001) Regional Disparity in China 1985-1994: The Effects of Globalization and Economic Liberalization. Annals of Regional Science, 35, 3-37.
http://dx.doi.org/10.1007/s001680000020 [26] Zhang, X.B. and Zhang, K. (2003) How Does Globalisation Affect Regional Inequality within a Developing Country? Evidence from China. Journal of Development Studies, 39, 47-67.
http://dx.doi.org/10.1080/713869425 [27] Nunnenkamp, P. and Stracke, R. (2007) Foreign Direct Investment in Post-Reform India: Likely to Work Wonders for Regional Development? Kiel Institute of World Economics Working Paper No.1375, Kiel. [28] Zhang, J. (2008) Estimation of China’s Provincial Capital Stock (1952-2004) with Applications. Journal of Chinese Economic and Business Studies, 6, 177-196.
http://dx.doi.org/10.1080/14765280802028302 [29] Hall, R.E. and Jones, C.I. (1999) Why Do Some Countries Produce So Much More Output per Worker than Others? Quarterly Journal of Economics, 114, 83-116.
http://dx.doi.org/10.1162/003355399555954 [30] Mincer, J. (1974) Schooling, Experience, and Earnings. Columbia University Press, New York. [31] Psacharopoulos, G. (1994) Returns to Investment in Education: A Global Update. World Development, 22, 1325-1343. http://dx.doi.org/10.1016/0305-750X(94)90007-8 [32] Parsley, D.C. and Wei, S. (2001) Limiting Currency Volatility to Stimulate Goods Markets Integration: A Price Based Approach. NBER Working Paper No. 8468, National Bureau of Economic Research. [33] Sheng, B. and Mao, Q. (2011) Trade Openness, Domestic Market Integration, and Provincial Economic Growth in China: 1985-2008. The Journal of World Economy, 44-66. [34] Blundell, R. and Bond, S. (2000) GMM Estimation with Persistent Panel Data: An Application to Production Functions. Econometric Reviews, 19, 321-340.
http://dx.doi.org/10.1080/07474930008800475
[1] Fung, K.C., Iizaka, H. and Tong, S.Y. (2004) FDI in China: Policy, Recent Trend and Impact. Global Economic Review, 33, 99-130. http://dx.doi.org/10.1080/12265080408449850 [2] Yin, H. (2011) Characteristics of Inter-Regional Income Disparities in China. Social Sciences in China, 32, 123-144. http://dx.doi.org/10.1080/02529203.2011.598305 [3] Zhu, S., Lai, M. and Fu, X. (2008) Spatial Characteristics and Dynamics of Provincial Total Factor Productivity in China. Journal of Chinese Economic and Business Studies, 6, 197-217.
http://dx.doi.org/10.1080/14765280802028328 [4] Cheung, K. and Lin, P. (2004) Spillover Effects of FDI on Innovation in China: Evidence from the Provincial Data. China Economic Review, 15, 25-44.
http://dx.doi.org/10.1016/S1043-951X(03)00027-0 [5] Zhang, K.H. (2006) Foreign Direct Investment and Economic Growth in China: A Panel Data Study for 1992-2004, Conference of WTO. China and Asian Economies, University of International Business and Economics, Beijing. [6] Ouyang, P. and Fu, H. (2012) Economic Growth, Local Industrial Development and Inter-Regional Spillovers from Foreign Direct Investment: Evidence from China. China Economic Review, 23, 445-460. http://dx.doi.org/10.1016/j.chieco.2012.03.005 [7] Madariaga, N. and Poncet, S. (2007) FDI in Chinese Cities: Spillovers and Impact on Growth. The World Economy, 30, 837-862. http://dx.doi.org/10.1111/j.1467-9701.2007.01025.x [8] Borensztein, E., De Gregorio, J. and Lee, J. (1998) How Does Foreign Direct Investment Affect Economic Growth? Journal of International Economics, 45, 115-135.
http://dx.doi.org/10.1016/S0022-1996(97)00033-0 [9] Kuo, C. and Yang, C. (2008) Knowledge Capital and Spillover on Regional Economic Growth: Evidence from China. China Economic Review, 19, 594-604. http://dx.doi.org/10.1016/j.chieco.2008.06.004 [10] Aitken, B.J. and Harrison, A.E. (1999) Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela. American Economic Review, 89, 605-618.
http://dx.doi.org/10.1257/aer.89.3.605 [11] Djankov, S. and Hoekman, B. (2000) Foreign Investment and Productivity Growth in Czech Enterprises. World Bank Economic Review, 14, 49-64. http://dx.doi.org/10.1093/wber/14.1.49 [12] Keller, W. and Yeaple, S.R. (2009) Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States. Review of Economics and Statistics, 91, 821-831. http://dx.doi.org/10.1162/rest.91.4.821 [13] Javorcik, B.S. (2004) Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages. American Economic Review, 94, 605-627.
http://dx.doi.org/10.1257/0002828041464605 [14] Kugler, M. (2006) Spillover from Foreign Direct Investment: Within or between Industries. Journal of Development Economics, 80, 444-477. http://dx.doi.org/10.1016/j.jdeveco.2005.03.002 [15] Liu, Z.Q. (2008) Foreign Direct Investment and Technology Spillovers: Theory and Evidence. Journal of Development Economics, 85, 176-193. http://dx.doi.org/10.1016/j.jdeveco.2006.07.001 [16] Kokko, A. (1996) Productivity Spillovers from Competition between Local Firms and Foreign Affiliates. Journal of International Development, 8, 517-530.
http://dx.doi.org/10.1002/(SICI)1099-1328(199607)8:4<517::AID-JID298>3.0.CO;2-P [17] Glass, A.J. and Saggi, K. (1998) International Technology Transfer and the Technology Gap. Journal of Development Economics, 55, 369-398. http://dx.doi.org/10.1016/S0304-3878(98)00041-8 [18] Girma, S., Greenaway, D. and Wakelin, K. (2001) Who Benefits from Foreign Direct Investment in the UK? Scottish Journal of Political Economy, 48, 119-133. http://dx.doi.org/10.1111/1467-9485.00189 [19] Girma, S. and Görg, H. (2002) Foreign Direct Investment, Spillovers and Absorptive Capacity: Evidence from Quantile Regressions. GEP Research Paper 02/14, University of Nottingham, Nottingham. [20] Girma, S. (2005) Absorptive Capacity and Productivity Spillovers from FDI: A Threshold Regression Analysis. Oxford Bulletin of Economics and Statistics, 67, 281-306.
http://dx.doi.org/10.1111/j.1468-0084.2005.00120.x [21] Girma, S. and Wakelin, K. (2002) Are There Regional Spillovers from FDI in the UK? GEP Research Paper, No. 16, University of Nottingham, Nottingham. [22] Hale, G. and Long, C. (2006) FDI Spillovers and Firm Ownership in China: Labor Markets and Backward Linkages. Federal Reserve Bank of San Francisco Working Paper Series No. 25, San Francisco. [23] Girma, S. and Gong, Y. (2008) FDI, Linkages and the Efficiency of State-Owned Enterprises in China. Journal of Development Studies, 44, 728-749. http://dx.doi.org/10.1080/00220380802009233 [24] Brun, J., Combes, J. and Renard, M. (2002) Are There Spillover Effects between Coastal and Non-Coastal Regions in China? China Economic Review, 13, 161-169.
http://dx.doi.org/10.1016/S1043-951X(02)00070-6 [25] Fujita, M. and Hu, D. (2001) Regional Disparity in China 1985-1994: The Effects of Globalization and Economic Liberalization. Annals of Regional Science, 35, 3-37.
http://dx.doi.org/10.1007/s001680000020 [26] Zhang, X.B. and Zhang, K. (2003) How Does Globalisation Affect Regional Inequality within a Developing Country? Evidence from China. Journal of Development Studies, 39, 47-67.
http://dx.doi.org/10.1080/713869425 [27] Nunnenkamp, P. and Stracke, R. (2007) Foreign Direct Investment in Post-Reform India: Likely to Work Wonders for Regional Development? Kiel Institute of World Economics Working Paper No.1375, Kiel. [28] Zhang, J. (2008) Estimation of China’s Provincial Capital Stock (1952-2004) with Applications. Journal of Chinese Economic and Business Studies, 6, 177-196.
http://dx.doi.org/10.1080/14765280802028302 [29] Hall, R.E. and Jones, C.I. (1999) Why Do Some Countries Produce So Much More Output per Worker than Others? Quarterly Journal of Economics, 114, 83-116.
http://dx.doi.org/10.1162/003355399555954 [30] Mincer, J. (1974) Schooling, Experience, and Earnings. Columbia University Press, New York. [31] Psacharopoulos, G. (1994) Returns to Investment in Education: A Global Update. World Development, 22, 1325-1343. http://dx.doi.org/10.1016/0305-750X(94)90007-8 [32] Parsley, D.C. and Wei, S. (2001) Limiting Currency Volatility to Stimulate Goods Markets Integration: A Price Based Approach. NBER Working Paper No. 8468, National Bureau of Economic Research. [33] Sheng, B. and Mao, Q. (2011) Trade Openness, Domestic Market Integration, and Provincial Economic Growth in China: 1985-2008. The Journal of World Economy, 44-66. [34] Blundell, R. and Bond, S. (2000) GMM Estimation with Persistent Panel Data: An Application to Production Functions. Econometric Reviews, 19, 321-340.
http://dx.doi.org/10.1080/07474930008800475