FOREIGN INVESTMENT AND PRODUCTIVITY OF LOCAL CHINESE FIRMS

Wen Yue and Jingyan Zhao
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Wen Yue: School of Business, Jiangnan University, P. R. China
Jingyan Zhao: ��Taiwan Research Institute, Xiamen University, P. R. China

The Singapore Economic Review (SER), 2025, vol. 70, issue 07, 2053-2073

Abstract: In this paper, we examine how foreign investment affects the productivity of local Chinese firms based on data from Chinese manufacturing firms. A series of robustness tests reveal that foreign investment significantly improves the productivity of local Chinese firms. Further analysis shows the varying impacts of foreign investment on the productivity of different types of local firms and indicates significant heterogeneity. We decompose the aggregate productivity growth into components, including the effects of technology progress, resource reallocation, firm entry and firm exit. Results show that foreign investment mainly promotes aggregate productivity growth by improving the resource allocation effect and technology progress effect.

Keywords: Foreign investment; spillover effect; total factor productivity; local firms (search for similar items in EconPapers)
JEL-codes: D24 F21 O47 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S0217590822500497

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