Inward FDI and host country productivity: evidence from China’s electronics industry

Industry cross-sectional studies of spillover effects from inward foreign direct investment (FDI) have reported many conflicting findings. This study focuses on a single sub-sector to investigate whether more robust findings can be discerned, and whether spillovers decline over time. Data for China’s electronics industry for 41 sub-sectors for the years 1996, 1998, 2000 and 2001 are employed. The key finding is evidence that spillover benefits to China’s domestic industry decline over the period. This suggests that host productivity gains via learning from FDI have a life cycle. However, our findings for a positive effect for State-owned enterprises in the regressions suggest that joint ventures with foreign affiliates may be an effective long term route to embed these local firms in the learning network of transnational corporations. This study also finds that transnational corporations are attracted to higher productivity sub-sectors, implying that, without appropriate steps (as taken in this study), a bias exists towards findings of positive spillover effects.