Foreign direct investment and the performance of indigenous firms in China’s textile industry

Sun, Sizhong, and Anwar, Sajid (2017) Foreign direct investment and the performance of indigenous firms in China’s textile industry. The Quarterly Review of Economics and Finance, 65. pp. 107-113.

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This paper contributes to the debate on the effect of foreign direct investment (FDI) on indigenous firms in host economies. Using a Melitz-type theoretical model involving firm heterogeneity, we first show that FDI affects the revenue of indigenous firms, in both domestic and export markets, through a direct as well as indirect channel. In the presence of positive FDI-related productivity spillovers, the direct effect is positive but the indirect effect is negative. As the overall effect cannot be unambiguously determined, in stage two, we further investigate this issue by using firm level data from China’s textile industry over the period 2005–07. We find that FDI in China’s textile industry decreases (increases) the revenue of indigenous firms in the domestic (export) market. The empirical results are also robust across (i) alternative measures and (ii) sources of FDI.

Item ID: 48990
Item Type: Article (Research - C1)
ISSN: 10629769
Keywords: FDI; domestic market; export market; China; textile industry
Date Deposited: 26 Jun 2017 23:00
FoR Codes: 38 ECONOMICS > 3801 Applied economics > 380109 Industry economics and industrial organisation @ 60%
38 ECONOMICS > 3801 Applied economics > 380110 International economics @ 40%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9102 Microeconomics > 910299 Microeconomics not elsewhere classified @ 100%
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