FDI and Spillovers in China: Non-Linearity and Absorptive Capacity

Ari Kokko, Taotao Chen, Patrick Gustavsson Tingvall

    Research output: Contribution to journalJournal articleResearchpeer-review


    Using a fixed effect variance decomposition model we estimate SUR models to analyse FDI spillovers from contagion and spillovers from competition on local firms in China. While the former type of spillover mainly depends on the degree of foreign presence, the latter kind is related to how foreign and local firms interact. The main conclusion is that FDI has been beneficial for the Chinese economy but that spillovers are not evenly distributed across firms and industries. Spillovers from contagion tend to exhibit an inverse U-shaped pattern with respect to the degree of foreign presence at the industry level, whereas spillovers from competition are more linear. Industries with high absorptive capacity and/or high efficiency are the ones best equipped to take advantage of spillovers from foreign-owned firms.
    Original languageEnglish
    JournalJournal of Chinese Economics and Business Studies
    Issue number1
    Pages (from-to)1-22
    Number of pages22
    Publication statusPublished - 2011


    • Spillovers
    • Fixed Effect Variance Decomposition
    • FDI
    • China

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