Foreign direct investment learning of the productivity in chinese regional economy

Abstract

This paper examines the effect of learning by FDI on TFP using Chinese provinces dataset. The study employs endogenous growth model that takes place in the various capital goods including foreign capital goods as vehicle for the technology transfer. The study derives TFP as a function of FDI stock, indicating that its contribution is through the channel of technological progress, rather than capital accumulation in the hosting country. The theoretical prediction is that FDI learning has a negative level effect in the short run on the TFP, but has a positive rate effect in the long run. These predictions are empirically confirmed using a fixed effects panel model. Empirical findings show that the FDI learning plays an important role in the process of technology diffusion, controlling for other factors that may affect TFP. The study also discusses a policy implication of the FDI on the Chinese regional economic growth. © 2020, Malaysian Consumer and Family Economics Association. All rights reserved.