The Impact of Inward FDI on the Performance of Chinese Manufacturing Firms
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of
Impact
Inward
FDI
Performance of
on
the
Chinese
Firms Manufacturing PeterJ. Buckley* CENTRE FOR INTERNATIONAL BUSINESS, UNIVERSITY OF LEEDS, U.K.
JeremyClegg** CENTRE FOR INTERNATIONAL BUSINESS, UNIVERSITY OF LEEDS, U.K.
Chengqi Wang*** CENTRE FOR INTERNATIONAL BUSINESS, UNIVERSITY OF LEEDS, U.K.
Using detailed cross-section data for 1995, non-Chinese MNEs are found to generate technological and international market access spillover benefits for Chinese firms, while overseas Chinese investors confer only market access benefits. State-owned enterprises reap no benefits, and indeed receive nega-
tive spillovers from overseas investors, in marked contrast to the positive spillovers gained by collectively-owned firms. These findings underline the importance of reform in state-owned enterprises to raise the absorptive capacity of the Chinese domestically-owned sector.
INTRODUCTION
the amount of FDI will underestimate its overall consequences if spillover effects are significant (Murphy, 1992; O'Malley, 1994; Buckwalter, 1995). This study investigates the impact of FDI on the performance of Chinese locally-owned firms in manufacturing. Prior research on spillovers from foreign to locally-owned firms shows mixed
Recent years have witnessed the emergence of China as one of the most important destinations for foreign direct investment (FDI), which reached US$403.98 billion by the end of 1999 (MOFTEC, 2000). China is now the largest recipient of FDI in the developing world. However,
*Peter Buckley is Professor of International Business and Director of the Centre for International Business, University of Leeds (CIBUL). **Jeremy Clegg is Jean Monnet Senior Lecturer in European Integration and International Business Management at the Centre for International Business, University of Leeds (CIBUL). ** Chengqi Wang is Senior Research Fellow in International Business and China at the Centre for International Business, University of Leeds (CIBUL). The authors would like to thank three anonymous referees for their insightful and helpful comments and suggestions. JOURNAL OF INTERNATIONALBUSINESS STUDIES,
33, 4
(FOURTH QUARTER
2002): 637-655
637
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FDI IMPACTONCHINESE FIRMS results (Blomstrom and Kokko, 1997). Evidence to show that the productivity of local firms is enhanced because of FDI-induced spillovers (Caves, 1974; Globerman, 1979, Liu et al., 2000) is balanced by other studies finding negligible spillovers (Haddad and Harrison, 1993), or a negative correlation between FDI and the performance of the host country economy (Singh, 1992). These results may reflect the omission of important variables, such as the level of R&D expenditure and employees with technical degrees (Diankov and Hoekman, 2000). Spillovers are generally measured as the impact of the presence of foreign multinational enterprises (MNEs) on productivity in domestic firms. Mixed finding
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