Trade and Foreign Direct Investment in China: A Political Economy Approach

Lee G. Branstetter and Robert C. Feenstra ()

No 7100, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We view the political process in China as trading off the social benefits of increased trade and foreign direct investment, against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman (1994, 1996) is used to derive an empirically estimable government objective function. The key structural parameters of this model are estimated using province-level data on foreign direct investment and trade flows in China, over the years 1984-1995. We find that the weight applied to consumer welfare is between one-fifth and one-twelfth of the weight applied to the output of state-owned enterprises. We find that governmental preferences have shifted over time, but even in recent periods the weight on consumer welfare is only one-half of the weight on state-owned enterprises. This suggests that China may find it politically difficult to follow through with liberalizing its trade and investment regimes, such as under its WTO accession proposal.

JEL-codes: F13 F21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-dev, nep-ifn and nep-pol
Date: 1999-04
Note: ITI
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Journal Article: Trade and foreign direct investment in China: a political economy approach (2002)
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