FDI Spillovers and Industrial Policy: The Role of Tariffs and Tax Holidays

Luosha Du, Ann Harrison and Gary Jefferson

Chapter 9 in Globalization, Firms, and Workers, 2022, pp 215-232 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This paper examines how industrial policy – specifically tariff liberalization and tax subsidies – affects the magnitude and direction of FDI spillovers. We examine these spillover effects across the diverse ownership structure of China’s manufacturing sector for 1998 through 2007. We find that tariff reforms, particularly tariff reductions associated with China’s WTO ascension, increased the productivity impacts of FDI’s backward spillovers. Tax policy – both corporate income and VAT subsidies – has seemingly drawn FDI into strategic industries that spawn significant vertical spillovers. We conclude that liberalization measures during the critical 1998–2007 period on balance served to enhance productivity growth in Chinese industry.

Keywords: Globalization; Trade Reform; Foreign Direct Investment; Labour Markets; Employment; Wages; Offshoring; Innovation; Credit Constraints; Industrial Policy; Labour Rights Activism (search for similar items in EconPapers)
JEL-codes: F02 F6 F63 (search for similar items in EconPapers)
Date: 2022
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Related works:
Journal Article: FDI Spillovers and Industrial Policy: The Role of Tariffs and Tax Holidays (2014)
Working Paper: FDI Spillovers and Industrial Policy: The Role of Tariffs and Tax Holidays (2011)
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