The Impact of Foreign Direct Investment on Chinese Economy
Date Issued
2012
Date
2012
Author(s)
Ting, Hsin-Lan
Abstract
Attracting foreign direct investment (FDI) has been an important economic policy for many developing countries. FDI can benefit the host country in many ways: accelerating capital formation, providing employment opportunities, enhancing competition, transferring technologies, etc. China has utilized FDI actively since its economic reforms and many believed it has benefited from this policy enormously. In this dissertation, we investigate three dimensions of FDI in China, namely location choice, technology spillovers, and gender inequality in employment.
This dissertation is organized into four chapters. In Chapter 1, we provide an overview of the issues to be studied. In Chapter 2, we study the location choice of Taiwanese multinational corporations (MNCs) in China. We find that regional institutions affect the location choice, in addition to the well-known agglomeration effects. Taiwanese MNCs tend to be attracted by the regions that are open to foreign trade, permissive in environmental regulations, and provides good social welfare programs, and they tend to shun away from the regions with heavy non-tax (fees) burdens, dominated by state-owned enterprises, or endowed with good technological capabilities. We also find the impacts of some institutions became more significant after China was admitted to World Trade Organization (WTO) in 2011. This suggests that alignment with world institutions has made China conform to the rest of the world in terms of its attractiveness to foreign investors.
In Chapter 3, we investigate the spillover effects of MNCs in China. We separate the spillover effect into three categories: horizontal spillover, backward spillover, and forward spillover. Our empirical study found the spillover effects to differ by the ownership of local firms. In general, state-owned enterprises lose unambiguously from the presence of MNCs in the same industry, while non-state enterprises gain until MNCs come to dominate the local market. All local firms gain from backward linkages to MNCs. However, most privately-owned firms lose from forward linkages to MNCs. We interpret this phenomenon as a manifestation of institutional conflicts or system competition.
In Chapter 4, we study the impact of FDI on female employment in China by using the provincial-level macro-data in the period of 2000-2009 and individual firm-level data of 2005 and 2006. We found that the share of female employment in the province increases with FDI and the presence of migrant workers. Employment patterns of individual firms also show that foreign-owned firms hire a larger proportion of female workers compared to local firms. We attribute foreign firms’ inclination to hiring a higher proportion of female workers to the differences in their production technologies from those of local firms. Due to technological differences, MNCs prefer younger workers who are easier to be trained. Because the share of female workers is higher among the younger labor force, the employment of MNCs exhibits a higher female share. We provide evidence to support this hypothesis. In particular, we show that MNCs with higher productivity, or a technological bias in using labor or materials, tend to hire a larger share of female workers.
Subjects
Economic institutions
Location choice
FDI spillover
System competition
Female employment
China
Type
thesis
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