The Impact of Foreign Direct Investment On the Productivity of China's Automotive Industry

Zusammenfassung

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This study contributes to the existing literature by empirically investigating the effect of foreign direct investment (FDI) inflows on the aggregate labor productivity of China's automotive industry. A production function model is developed using a panel data set at sub-sector level. Two statistical models: pooled ordinary least squares model and fixed effects model were used to estimate the influence of foreign direct investment on aggregate labor productivity in the industry. Inward FDI plays a positive role in increasing industrial productivity, implying that the government should continue to encourage inward investment. However the results also suggest that efforts to increase capital intensity and average firm size in the industry will also improve labor productivity.

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Auszug

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The Impact of Foreign Direct Investment On the Productivity of China's Automotive Industry

Introduction

There is increasing interest in the impact of foreign direct investment (FDI) on host country productivity. However, contradictory empirical results have been obtained from a number of previous studies. Kokko et al. (1994,1996), Egger and Pfaffermayr (2001), Blomström and Persson (1983), and Bertschek (1995), for example, found evidence of a significant positive effect of FDI on spillovers. Haddad and Harrison (1993), Girma et al. (2001), Kholdy (1995), Globerman (1979), and Veugelers and Houte (1990), however, found insignificant, or negative impacts in their empirical results. Interestingly, Aitken and Harrison (1999), Zukowska-Gagelmann (2000), and Djankov and Hoekman (2000) obtained a complicated pattern of mixed results in their respective studies. This paper adds to this important field of research by examining the impact of FDI on China's automotive industrial productivity using a panel data set.

The automotive industry is chosen for several reasons. First, the automotive industry is one of the six key industries1 in China. It has expanded rapidly over the reform years and typically accounts for a large and increasing share of industrial production, output, exports, and employment. In 1999, total sales of China's autoindustry were about US$ 38 billion, accounting for nearly 4 percent of the country's GDP. In 1998, seven million employees worked in the auto-industry, accounting for 3.3 percent of the total Chinese urban workforce (Harwit 2001). The automotive industry, particularly in industrialised countries, is a focus of attention due to its major contribution to GDP and employment (Irandoust 1999). Historically, in the USA, Japan, and South Korea, automotive exports have been an important element of for...

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