Putting people first? Chinese state-owned enterprises' adjustment to globalisation

This paper analyses the impact of FDI on the employment, productivity, profitability and survival performance of urban SOEs in China, with the aid of a rich panel data set over the period 1999–2005. Our estimation strategy controls for the endogeneity of a number of regressors and accounts for firm-level unobserved heterogeneity. Four key results emerge from the analysis: (i) Firmlevel foreign finance enhances the employment and productivity growth of SOEs, as well as their survival prospects; (ii) Competition from sectoral FDI has a deleterious impact on the growth and survival probability of SOEs without access to any foreign capital; (iii) Export-oriented FDI in downstream sectors has negative performance ramifications; and (iv) There are no discernible spillover effects that can be attributed to FDI in upstream sectors, suggesting limited linkages between multinational firms and SOEs.

Openness and economic growth

The themes of this thesis are that international trade and foreign direct investment (FDI) are closely related and that they have varying impacts on economic growth in countries at different stages of development. The thesis consists of three empirical studies. The first one examines the causal relationship between FDI and trade in China. The empirical study is based on a panel of bilateral data for China and 19 home countries/regions over the period 1984-98. The specific feature of the study is that econometric techniques designed specially for panel data are applied to test for unit roots and causality. The results indicate a virtuous procedure of development for China. The growth of China’s imports causes growth in inward FDI from a home country/region, which in turn causes the growth of exports from China to the home country/region. The growth of exports causes the growth of imports. This virtuous procedure is the result of China’s policy of opening to the outside world. China has been encouraging export-oriented FDI and reducing trade barriers. Such policy instruments should be further encouraged in order to enhance economic growth. In the second study, an extended gravity model is constructed to identify the main causes of recent trade growth in OECD countries. The specific features include (a) the explicit introduction of R&D and FDI as two important explanatory variables into an augmented gravity equation; (b) the adoption of a panel data approach, and (c) the careful treatment of endogeneity. The main findings are that the levels and similarities of market size, domestic R&D stock and inward FDI stock are positively related to the volume of bilateral trade, while the geographical distance, exchange rate and relative factor endowments, has a negative impact. These findings lend support to new trade, FDI and economic growth theories. The third study evaluates the impact of openness on growth in different country groups. This research distinguishes itself from many existing studies in three aspects: first, both trade and FDI are included in the measurement of openness. Second, countries are divided' into three groups according to their development stages to compare the roles of FDI and trade in different groups. Third, the possible problems of endogeneity and multicollinearity of FDI and trade are carefully dealt with in a panel data setting. The main findings are that FDI and trade are both beneficial to a country's development. However, trade has positive effects on growth in all country groups but FDI has positive effects on growth only in the country groups which have had moderate development. The findings suggest FDI and trade may affect growth under different conditions.

FDI, trade and growth, a causal link?

. FDI, Trade and Growth, a Causal Link? (RP0710) Prof Nigel DRIFFIELD Dr Rakesh BISSOONDEEAL Mayang Pramadhani Non-technical Summary This paper explores the relationship between imports, exports, foreign direct investment and growth. For some time there has been a good deal of debate whether trade and foreign direct investment) FDI are substitutes and complements, with the existing literature generating some rather contradictory findings. We show, for Indonesia that inward FDI and both imports and exports are complementary, and further that FDI causes an increase in trade. This is of particular interest for a country such as Indonesia, that has attracted a high proportion of export-orientated inward investment. This, theoretically at least is associated with an increase in imports, in the form of capital goods and components, but a reduction in imports. We show that the previous literature that fails to find such a relationship does so because both trade and FDI are associated with growth, and previous work ignores these growth effects when seeking to isolate the relationship between trade and FDI.

Determinants and impacts of inward FDI in Japan

The research consists of three empirical studies. The first examines how source country characteristics affect the aggregate FDI inflows in the Japanese economy during the period of 1989-2002. Our results demonstrate that the stable investment climate of the home country is an essential factor indicating FDI inflows to Japan. By contrast, the export performance of the source country is negatively correlated with FDI inflows, indicating that international trade and FDI are substitutes. The second study identifies the determinants of foreign penetration across Japanese manufacturing sectors at the three-digit level during the period of 1997-2003. More importantly, this study examines the moderating effects of keiretsu affiliations on the relationship between various sectoral characteristics and foreign participation. The evidence of both horizontal and vertical keiretsu impacts on foreign penetration depends on not only different proxy measures used for inward FDI, but also on the level of technological sophistication in given sectors. In general, our results demonstrate that horizontally linked keiretsu are positively associated with foreign productions in knowledge-intensive sectors. By contrast, this effect becomes a significant entry barrier to foreign employment in low-tech sectors. The final study evaluates the impacts of a foreign presence on the productivity of Japanese manufacturing firms over the period of 1997-2003. Our results suggest that spillover effects largely differ according to the level of absorptive capacity of indigenous firms.