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Does foreign direct investment crowd in or crowd out private domestic investment in China? The effect of entry mode

George Chen (), Yao Yao and Julien Malizard ()

Economic Modelling, 2017, vol. 61, issue C, 409-419

Abstract: Using quarterly data spanning from 1994Q1 to 2014Q4, we find a neutral relationship between foreign direct investment (FDI) and domestic investment in China. However, when we consider the entry mode chosen by foreign investors, we find that whilst equity joint venture (EJV) crowds in domestic investment, wholly foreign-funded enterprise (WFFE) crowds it out. Our results remain robust under alternative estimators and across different time periods. Based on these results, we argue that the Chinese government needs to actively promote the formation of EJV and uses it as the catalyst for industrial upgrading in the economy.

Keywords: Foreign direct investment; Entry mode; ARDL bounds test; Domestic investment; China (search for similar items in EconPapers)
JEL-codes: E22 F23 O53 (search for similar items in EconPapers)
Date: 2017
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