Why India is mainly engaged in offshore service activities, while China is disproportionately engaged in manufacturing?
Resource
China Economic Review, 20(2), 236-245.
Journal
China Economic Review
Journal Volume
20
Journal Issue
2
Pages
236-245
Date Issued
2009
Date
2009
Author(s)
Abstract
We extend the model of Antr?s and Helpman (Antr?s, P., Helpman, E., 2004. Global Sourcing. Journal of Political Economy 112(3), 552-580) by incorporating the merits of Zhang and Markusen (Zhang, K.H., Markusen, J.R., 1999. Vertical Multinationals and Host-country Characteristics. Journal of Development Economics 59(2), 233-252.) to demonstrate why China has been so successful in disproportionately attracting foreign offshore manufacturing activities, while India has been engaged mainly in offshore service activities. We argue that the host country's industry-specific technology capabilities make the difference in FDI composition between China and India. In addition to incomplete contract frictions, the host country's technological capabilities, which affect technology transfer costs, are essential to FDI inflows. We also find that, after excluding overseas Chinese investment, India is almost on par with China in terms of the market size it offers to marketing-seeking FDI. ? 2009 Elsevier Inc. All rights reserved.
Subjects
Foreign direct investment; Offshore; Outsourcing; Technology transfer
Type
journal article
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