A Model for the Roles of FDI in Shaping Productivity Growth: With Empirical Evidence from China

This paper presents an analytic framework with empirical evidence aiming to improve our understanding of the roles of foreign direct investment (FDI) in shaping productivity growth. Specifically, the study empirically examines the effects of FDI on China’s regional productivity growth. Our analyses based on two versions of our model, one excluding and one including human capital, show that FDI has both a general growth effect and a convergence effect on productivity in the Chinese provinces over the period 1996–2012. Our findings imply, at least in the case of the Chinese provinces, that apart from its direct, static level effect on output as an accumulable factor of production, FDI also exerts indirect, dynamic impacts on output through its growth and convergence effects on productivity. JEL Classifications: F41, O47, O53