Foreign direct investment spillover effects in China: Are they different across industries with different technological levels?

Article history: Received 13 June 2012 Received in revised form 23 May 2013 Accepted 26 May 2013 Available online 4 June 2013 Despite the impressivemagnitude of inward FDI in China, empirical studies on its spillover effects are relatively scarce and have failed to find conclusive evidence. By exploring a vast firm-level panel dataset, this study aims to test empirically whether the horizontal and vertical FDI spillover effects are different among industries classified by their technological levels. Key findings are as followings: First, foreign investments in the same industry are more likely to engender negative influences on the local Chinese firms. Second, these negative horizontal effects are particularly prominent in low technology sectors. Third, the effects of foreign investments in other industries appear to be positive and significant relatively evenly across industries with different technological levels. Considered in the context of Chinese policies on FDI, these findings suggest that government policies could be a crucial factor in taking advantage of FDI spillovers. © 2013 Elsevier Inc. All rights reserved. JEL classification: F21 O33