Three Essays about FDI and International Trade in China
Date Issued
2010
Date
2010
Author(s)
Wu, Yu-Yin
Abstract
When China adopted its open door policy in 1978, lacking of foreign exchange and newly technology was the main obstacle for its development. Meanwhile, large population which offered MNEs rich labor forces and thick market was China’s main advantage. Therefore, preferential policies for exporters and variety of development zones were established to attract FDI and earn foreign exchange. On the other hand, in order to promote technology level, Chinese government enforced the policy of “market for technology” and set many restrictions on those foreign investors who would like to sell products in China. All these policies undoubtedly affected inward FDI and the MNEs’ entry decisions. However, after “learning by doing” for almost 30 years, how do these policies work? The following three essays were presented to show some phenomenon after the execution of those policies.
In the first essay, we examine the relations between two types of development zones in China, Economic Technological Development Zones (ETDZs) and Science and Technology Industrial Parks (STIPs), during the period 2001 to 2005. After controlling for regional characteristics, the results show that an ETDZ with a STIP located in the same region (city) attracts significantly more FDI, an indication of a complementary relationship between ETDZs and STIPs. The complementary relation is reinforced by the fact that more exports, sales, or employment of STIPs induces greater FDI to the ETDZs within the same region. However, the spillovers fall unevenly across regions. The ETDZs in the coastal regions benefit more from the presence of STIPs than those in the inland regions, which may lead to greater regional development disparities in China.
By using China as a case study, we show in this paper that the JV mode decisions and ownership decision, which are affected by a somewhat different set of factors, should be treated as a two-step procedure. Among the determining factors, transaction costs and firm-specific assets supply useful information about the MNEs’ entry decisions. And further, the industrial competition, the restriction on MNEs’ equity share for selling in local market, and the location characteristics are determined effective factors on JV ownerships decisions as well.
The third essay provides some evidence that challenges the widespread consensus that exporters outperform nonexporters in productivity. By using Chinese textiles and electronics firms as a case study, we show that Chinese exporters exhibit characteristics different from those in other countries as suggested by many studies. We also show, after controlling for firm characteristics, that exporters are less productive than nonexporters, a result that contradicts the conventional wisdom. This holds when productivity is measured as labor productivity or total factor productivity and when self-selection bias due to the endogeneity of export decisions is considered. Some possible explanations are then provided.
Subjects
FDI
Export
Labor productivity
Entry mode
China
Type
thesis
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