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How does foreign direct investment affect industrial competitiveness? Evidence from China

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  • Zhang, Kevin Honglin

Abstract

Industrial competitiveness (IC) is a country's ability to produce and export manufactured goods competitively. How does foreign direct investment (FDI) affect IC in China? The significance of the topic, besides the intrinsic importance of IC, is heightened by outstanding performance of the Chinese industry and massive increase in FDI flows into China in the past decade. Yet empirical studies on the issue in the literature have been limited. This article attempts to close the gap by estimating the role of FDI with a large panel data of 21 manufacturing sectors for 31 regions in six years (2005–2010). We construct, following the method of UNIDO (2002), the IC index to measure multidimensional industrial performance. Several empirical specifications are developed for IC level and IC growth with both panel and cross-section data. Results suggest that FDI has large positive effects on China's industrial performance; such effects are much greater on low-tech manufacturing than medium- and high-tech industries, and the contribution is enhanced by FDI's interaction with local human capital. The role of FDI increases with FDI inflows over the period, and changes in FDI affect changes in industrial performance.

Suggested Citation

  • Zhang, Kevin Honglin, 2014. "How does foreign direct investment affect industrial competitiveness? Evidence from China," China Economic Review, Elsevier, vol. 30(C), pages 530-539.
    • Handle: RePEc:eee:chieco:v:30:y:2014:i:c:p:530-539
    DOI: 10.1016/j.chieco.2013.08.003
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    13. Zhang, Lin, 2017. "The knowledge spillover effects of FDI on the productivity and efficiency of research activities in China," China Economic Review, Elsevier, vol. 42(C), pages 1-14.
    14. Takanori Minamikawa, 2018. "Evaluation of the sophistication of Chinese industries using the information-geometric decomposition approach," Discussion papers 1801-2e Classification- C, ERINA - Economic Research Institute for Northeast Asia, revised Apr 2018.
    15. Latorre, María C. & Hosoe, Nobuhiro, 2016. "The role of Japanese FDI in China," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 226-241.
    16. Huang, Yongming & Faraz Raza, Syed Muhammad & Usman, Muhammad, 2023. "Asymmetric role of natural resources dependence, industrialization, and foreign direct investment in China’s economic growth," Resources Policy, Elsevier, vol. 85(PB).
    17. Mohd. Fayaz & Sandeep Kaur Bhatia, 2018. "Technological Intensity of Indian Exports and the Performance of Emerging Asian Economies," Emerging Economy Studies, International Management Institute, vol. 4(1), pages 62-77, May.
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    19. Jankowska, Barbara & Götz, Marta & Tarka, Piotr, 2021. "Foreign subsidiaries as vehicles of industry 4.0: The case of foreign subsidiaries in a post-transition economy," International Business Review, Elsevier, vol. 30(6).
    20. Su Li & Antonio Angelino & Haitao Yin & Francesca Spigarelli, 2017. "Determinants of FDI Localization in China: A County-Level Analysis for the Pharmaceutical Industry," IJERPH, MDPI, vol. 14(9), pages 1-20, August.
    21. Kirsi Zongo & Mahamadou Diarra, 2022. "Spatial Effects of Foreign Direct Investment Flows on Industrial Performance in Sub-Saharan African Countries [Effets spatiaux des flux d'investissements directs étrangers sur la performance indust," Working Papers hal-03578615, HAL.
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    More about this item

    Keywords

    Industrial competitiveness (IC); Multinational corporations (MNCs); Foreign direct investment (FDI);
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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