The Optimal Sectoral Level of Foreign Direct Investment
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| Title | The Optimal Sectoral Level of Foreign Direct Investment
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| Author | Zhong Changbiao |
| Organization | Yunnan University of Finance and Economics |
| Email | zhongchangbiao@163.com |
| Key Words | FDI; Spillover Effects; Non-linearity; Inflection point |
| Abstract | Using data for Chinese manufacturing industry for 1999-2008, this paper attempts to search for the most appropriate sectoral level of foreign penetration in light of spillover benefits arising from foreign presence. Our key result supports a nonlinear functional form. Foreign penetration rates in excess of just about two third of industrial capital are associated with declining spillover benefits, indicating the dominance of negative spillovers. The nonlinear relationship is found to be particularly strong in low-technology industries, contrasting a standard linear relationship in high-technology sectors. The finding of the complexity of spillover effects not only challenges the laissez-faire view of ‘the more inward FDI, the better’ and also has important policy implications. |
| Serial Number | WP79 |
| Time | 2011-07-20 |
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