اثرات سرایتی سرمایه گذاری مستقیم خارجی در چین: آیا آنها در صنایع با سطوح مختلف فن آوری متفاوت هستند؟

Despite the impressive magnitude of inward FDI in China, empirical studies on its spillover effects are relatively scarce and have failed to find conclusive evidence. By exploring a vast firm-level panel dataset, this study aims to test empirically whether the horizontal and vertical FDI spillover effects are different among industries classified by their technological levels. Key findings are as followings: First, foreign investments in the same industry are more likely to engender negative influences on the local Chinese firms. Second, these negative horizontal effects are particularly prominent in low technology sectors. Third, the effects of foreign investments in other industries appear to be positive and significant relatively evenly across industries with different technological levels. Considered in the context of Chinese policies on FDI, these findings suggest that government policies could be a crucial factor in taking advantage of FDI spillovers.

As global competition continues to intensify, foreign direct investment (FDI) is increasingly becoming a crucial strategic option for multinational enterprises (MNEs) to prevail against competitors. On the other hand, policy makers, particularly in developing countries, have a propensity to regard inward FDI as a useful springboard which helps to achieve economic takeoff and leap into advanced economies (Park & Ghauri, 2011). The expected positive effects of FDI on economic development include the following: the inflow of new technological and managerial knowledge that has not been available in host markets commonly promotes organizational renewal and strengthens sustainable competitive advantage (Inkpen, 1998); FDI is often referred to as the most stable and largest component of capital inputs (Adams, 2009); employment creation has also been given as a reason for the importance of FDI inflows (Kobrin, 2005). Due to the combination of mutual interests between both MNEs and host countries, the volume of FDI has increased dramatically in the past two decades. In particular, China has attracted huge scholarly attention from international business commentators, as it has been the largest FDI recipient in the developing world. As a result of active government measures to promote FDI inflows, FDI in China has grown rapidly since the early 1990s (for overviews on FDI policy and trends in China, see Fung, Iizaka, and Tong (2004), Lemoine (2000), Long (2005), Mantzopoulos and Shen (2011)). For instance, annual averages of US$ 2 billion per year during 1979–1984 have steadily and rapidly grown to more than US$ 193.7 billion in 2006. Accordingly, the total amount of FDI actually utilized in China has also grown from about an average of US$ 0.8 billion during 1979–1984 to more than US$ 92.4 billion per year in 2009. In addition, China has emerged as the second largest FDI recipient (the United States being in first place) in 2009 (UNCTAD, 2010). As a consequence, foreign investment in China has become an important source for investment in fixed assets. FDI may not only affect the national business environment, but also influence the operations of local firms: two effects have been distinguished and attracted special attention of researchers. The first is the intra-industry spillovers that would arise by the presence of FDI in the same sector, better known as “horizontal effects” (Konings, 2001). Discussions that try to identify channels for horizontal effects postulate that FDI may improve the productivity of local firms in the same sector through knowledge acquisition from MNEs and the competition intensified by the entry of foreign investment may result in the enhancement of organizational efficiency of local firms (Aitken & Harrison, 1999). The second is the inter-industry spillovers, better known as “vertical or linkage effects”, which could occur when foreign firms in other sectors create linkages with local firms through the creation of supply and demand chains (Blalock & Gertler, 2008). A partial list of the channels through which the vertical spillovers take place includes: foreign buyers' direct assistance to local suppliers to procure qualified supplies, higher requirements for product quality providing an incentive for local suppliers to upgrade their management and technology, strengthened competition among potential local contractors to contract with foreign firms, increased demand for intermediate goods that could create other positive effects such as economies of scale, and so on (Javorcik & Spatareanu, 2005). Unlike the theoretical definitiveness of FDI spillovers, a number of empirical studies examining productivity spillovers fail to find conclusive evidence. That is, the majority of studies for developing and transitional economies either fail to find significant positive effects or even uncover evidence of negative intra-industry effects (i.e., horizontal effects).3 A partial list of those studies includes Aitken and Harrison (1999) on Venezuela, Haddad and Harrison (1993) on Morocco, Djankov and Hoekman (2000) on the Czech Republic, Javorcik and Spatareanu (2008) on Romania, and Konings (2001) on Bulgaria, Romania and Poland. These studies suggest that FDI often causes a negative effect on local firms by increasing competitive pressure and taking market share away from firms in the host economy. Fortunately, evidence of positive vertical effects in developing economies seems to be stronger in empirical studies and previous literature generally finds that local suppliers to foreign buyers are the major beneficiaries of FDI inflows (see Javorcik (2004) on Lithuania, Javorcik and Spatareanu (2008) on Romania, Giroud (2007) on Malaysia, and Blalock and Gertler (2008) on Indonesia). Bwalya (2006) and Kugler (2006) also find little evidence in support of positive horizontal effects but find significant vertical effects of FDI in Zambia and Colombia, respectively. To sum up, the wisdom derived from the previous studies tells us that asymmetric FDI spillovers have positive vertical but negative horizontal effects. With respect to China, the empirical evidence for the question about FDI effects on local firms is much more complicated. In other words, some researchers perceive that inward FDI into China has positively contributed to economic development in the country directly by adding capital formation. Indeed, the advocates of this view maintain that FDI inflows in China have played a pivotal role in promoting exports, investment and employment, leading to faster economic growth in China (Banerjee, 2006, Chen, 1999, Ghauri and Firth, 2011, Lardy, 2000, February 24, Lemoine, 2000, Tseng and Zebregs, 2002, Zebregs, 2003 and Zhang and Song, 2000). Furthermore, some of them also argue that it has contributed to GDP growth in China indirectly by creating positive spillover effects from foreign invested firms (FIFs) to local firms (Cheung and Lin, 2003, Hu and Jefferson, 2002, Liu, 2002, Tseng and Zebregs, 2002 and Zebregs, 2003). In contrast, many other studies challenge this positive effect of FDI in China, for example by arguing that the transference of technology from FIFs to local firms, if any, has yielded only marginal positive influences (Chen et al., 1995, Wei, 2002 and Young and Lan, 1997). The third school takes a middle path. For instance, after investigating China's electronics industry, Buckley et al. (2006) suggest that the productivity gains from inward FDI in China have been confined only to certain, but not all, groups of firms. In addition, a more problematic inconsistency resides in the examinations exploring the horizontal effects of FDI in the Chinese market. Regarding vertical effects of FDI, all studies available for the Chinese economy confirm that FIFs have had significant positive vertical effects on local firms (Du et al., 2011, Lin et al., 2009 and Liu, 2008). Contrary to this strong agreement among researchers on the vertical effects in China, evidence suggested on the horizontal effects of FDI in the country is mixed and inconclusive. Du et al. (2011) find positive horizontal effects, even if weak and less robust. However, some other studies show that the positiveness of horizontal effects of FDI in China is conditional on the origin of FDI and industry, or both: Abraham, Konings, and Slootmaekers (2010) uncover evidence of positive horizontal FDI spillovers on average in the Chinese manufacturing industry, but the impacts of FDI originating from Taiwan, Macao and Hong Kong (TMH) on exporting firms are negative. In a similar vein, Lin et al. (2009) demonstrate negative horizontal spillover effects of FDI from TMH and positive horizontal spillover effects of FDI from non-TMH (mostly from OECD countries).4 In a different context, Girma, Gong, and Görg (2006) also document that inward FDI in the same sector has a negative effect, whereas it has a positive effect on innovative activities of state-owned enterprises (SOEs) that export, invest in human capital or R&D, or have prior innovation experience. The conditional nature of positive horizontal effects in China has even been found over time: Liu (2008) detects that an increase in FDI at the four-digit industry level lowers the short-term productivity level but raises the long-term rate of productivity growth of local firms. These inconclusive results for horizontal effects of FDI strongly suggest further research on the issue in China. Given the lack of agreement on the FDI spillover effects in China as well as the limited empirical studies, this paper notes that the existing studies seem to ignore an important concern that the effect of FDI presence may vary across industries depending on different technological levels. For instance, the industries with high technological requirements are likely to have local firms acquainting themselves with relatively high technology and consequently competitiveness in relation to foreign investors. If this is so, it would be expected that positive horizontal effects in these industries will dominate negative ones, resulting in overall positive effects. Considering rather wide technological gaps among Chinese industries, we believe that this concern is quite relevant for China. By answering the research question of whether the FDI spillover effects are different among industries classified by their technological levels, this paper is expected to make the following contributions. First, this paper is the first to show the asymmetric nature of FDI spillover effects across industries classified by their technological levels in China. Second, by using a very rich data source covering the largest number of firms among the currently available datasets across all Chinese manufacturing industries, we will provide much richer and thorough empirical results for the issue. Moreover, the existing literature for the Chinese case has failed to draw a broad picture in that, with a few exceptions, they have focused on certain industries or experimented with either horizontal or vertical effects. Unlike in previous studies, we will simultaneously test both horizontal and vertical effects of FDI. In other words, the strength of this paper is to empirically examine the heterogenous effect of horizontal and vertical spillover on local firms' productivity across industries using firm-level data. Although there are some seminal works, such as Aghion, Blundell, Griffith, Howitt, and Prantl (2009: 20) pointing out that “the threat of technologically advanced entry spurs innovation incentives in sectors close to the technology frontier, where successful innovation allows incumbents to survive the threat, but discourages innovation in laggard sectors, where the threat reduces incumbents' expected rents from innovating,” we further differentiate between horizontal and vertical spillover effects from FIFs. We believe that the empirical evidence of this paper examining the earlier findings will extend the understanding of our knowledge. Finally, we illuminate the drawbacks of the traditional approach to FDI presence for vertical effects and suggest our own alternative and theoretical rationales. The details on the discussion for model specifications are given in Section 2.2.

This paper explores whether FDI generates positive spillover effects to Chinese local firms and uncovers an important asymmetry between horizontal and vertical effects of FDI among industries depending on different technological levels, which are our most important contributions in the field. To be precise, first, vertical effects of FDI are by and large found to be positive and significant across all industries and the effect of industries' technological levels on this effect turns out to be minimal, which is a consistent result with that found by the majority of the existing studies. Second, horizontal investment is found to engender negative influences. Third, with respect to horizontal investments, the negative effect is particularly significant in low technology-intensive sectors, while it is not substantial even in high technology industries. These results are consistent with earlier findings, such as Aghion et al. (2009) arguing that local firms close to technology frontiers are positively affected by FIFs because only successful firms in innovation can compete against the entry of FIFs and survive. As a result such local firms actively engage in innovation and enhance their productivity. However, the value of our paper particularly resides in the fact that such positive effects of new entry are enlarged in the case when FDI is undertaken in a vertical manner. These asymmetries can be attributed to the different business environments across industries, which are in turn mainly attributable to government policies. It is true that the Chinese government has expected technical transfers and pecuniary benefits from inward FDI and thus encouraged its inflows by providing a series of preferential treatments to FIFs. In other words, Chinese policy makers have paid special attention to technology transfers from multinationals to Chinese firms in the high technology industries. In the process, the authorities have tried to negotiate with potential foreign partners to “trade market access for foreign technology acquisition”. As a result, much of the consequent inflow of foreign investment has become increasingly important technological sources in the high technology sectors.12 However, it is also true that China has never stopped efforts to develop its own technology (Fung et al., 2004, Long, 2005, Naughton, 2007 and Young and Lan, 1997). Because of these local advances of technology, technologies brought by foreign investors have been successfully absorbed (Naughton, 2007: 360). On the other hand, firms in the industries requiring lower technology have been relatively marginalized, resulting in lower competitiveness. FDIs in these industries have strengthened and intensified competition, which has overwhelmed the expected positive effects (Sjöholm, 2008). In contrast to the horizontal effect, vertical effects could be realized in that foreign investors were required by China's policies to procure parts from local firms (the proportion is determined through negotiation in practice). In order to make sure that the local suppliers meet new technological requirements imposed by foreign investors, they have continued to provide technical assistance, training and other support, which often function as catalysts to develop Chinese local firms' technology. For example, by recalling various survey results, Long (2005) demonstrates this point and argues that, after entering the Chinese market, FIFs commonly develop a “vertical division of labor” with local firms. Subsequently, fast growth of markets and demonstrated high profitability have in turn encouraged local firms to improve their technological level in order to enter markets, strengthening vertical spillover effects, including pecuniary. This sort of virtuous circle may be best described by the Kaldor–Verdoorn effect as defined above. Therefore, the strong vertical spillover effects of FDI detected can be an indirect reflection of the policy package for inward FDI in China, in the sense that foreign investors were offered at the onset of FDI negotiation to barter ‘preferential treatment and access to Chinese markets for technological transfer to Chinese firms’ (Naughton, 2007: 360). These analyses suggest important practical implications for policy makers in general. First, the Chinese case demonstrates that the expected positive FDI spillover effects will not be materialized automatically but depend critically on the host countries' local industrial and technological environments. When local firms are not ready to compete successfully against foreign investors in the same industry, competition effects will dominate positive ones, resulting in overall negative spillover effects on their productivities. From a practical point of view, this means that the government which expects FDI inflows in its economy should make sure that the domestic industries which receive them are competitive enough to stand up successfully to foreign competition and reap the maximum benefit in terms of technological development. Alternatively, government policy on FDI inflows should be one that allows FDI only in the industrial sectors that are ready to do things that way. Second, the Chinese case demonstrates that, in order to take full advantage of vertical effects of FDI, local firms should be equipped with a reasonable level of absorptive capacity. Regarding policy implications for policymakers who are tempted to design policy packages with a view to attracting inward FDI to help develop their own economies, we can recall the Chinese policy on technological development in the relatively high industries and the importance of the role that government policy plays in promoting the absorptive capacity in China. FDI should function as a catalyst in accelerating the maximization of vertical spillover effects in order to create local demand and eventually enlarge market size. MNEs' active assistance to local firms through vertical spillovers often enhances product quality and operational efficiency of local suppliers, increases demand for quality local products and escalates market potential, which contributes to economic development and helps to leap into advanced economies. In general, when the cooperation between MNEs and local firms is promoted, it is likely that the value of new foreign information is easily recognized, which in turn improves absorptive capacity in local learning organizations and macroscopically upgrades economic status. In this vein, local government needs to continuously emphasize reciprocal support by foreign investors and motivate collaboration of local firms with MNEs. However, it may be difficult for local firms to absorb foreign technology and sophisticated tacit know-how in the situation where the knowledge gap between knowledge transferors and acquirers is enormous. Thus, governments attracting inward FDI should also not neglect investments in R&D and self-development of technology and endeavor to enrich the knowledge reservoir of local firms. We argue that, as shown in this study, the cases of high technology industries in China provide a good example in this regard: that is, the Chinese government has supported them, thereby making them able to maximize the benefits from inward FDI and minimize the potential negative impacts. Despite the practical contributions to current literature, we should acknowledge that there are some research limitations. First, as we shed light on drawing a large picture in this paper, we do not know specific channels and reasons for how such effects are yielded. In this vein, it will be interesting if other researchers attempt to identify various paths leading to our findings. Second, to reiterate, our results reveal that the overall effects of horizontal investments are negative. However, we conjecture that there are some exceptional sectors and we are not able to point out such industries through the techniques used. This also guides an avenue for future research minutely investigating the effects of horizontal FDI on each industry. Third, there is a common sense that turnover from FIFs to local firms elevates spillover effects in host markets. We would suggest a need to experiment with mechanisms promoting the switch of employee jobs from FIFs to local firms. Finally, although TFP can be affected by own knowledge capital input, we did not consider its possible influence mainly because we did not have sufficient information on the variable. We acknowledge that this is also one of primary drawbacks in this paper.