Sizhong Sun

How Does FDI Affect Domestic Firms’ Exports? Industrial Evidence

Using a Heckman sample selection model estimated using pooled four-year firm-level data, this paper explores the export spillovers from the FDI in the cultural, educational and sporting product manufacturing industry of the manufacturing sector in China from 2000 to 2003. The manufacturing sector contributes around 40 per cent of the GDP in the Chinese economy, and the cultural, educational and sporting product manufacturing industry has a significant proportion of FDI activities, and firms in this sector are active in exporting. Through the empirical exercise, we find that there exist export spillovers from FDI in the industry, for which the magnitude depends on firms’ geographical location, sale cost and revenue ratio, and ownership structure. On average, domestic firms located in Western China suffer from a foreign presence, irrespective of whether they are privately owned or state and collectively owned. For firms in Central China, both the privately owned and state and collectively owned firms appear to benefit from foreign presence. Regarding firms located in Coastal China, the privately owned firms suffer from the foreign presence, while in contrast the state and collectively owned firms benefit from the foreign presence. In addition, in this industry there are more firms that benefit from the presence of FDI than those that suffer, which to some extent justifies the governments policy to attract the FDI inflow.

Foreign Direct Investment and Technology Spillovers in China's Manufacturing Sector

This article explores the technology spillovers of foreign direct investment (FDI) in Chinas manufacturing sector in 2003. Using a simultaneous equation model estimated over a comprehensive firm-level data set, we find that foreign direct investment in China generates significant and positive technology spillovers to domestic firms, with a 1 percent increase in foreign presence promoting labor productivity of domestic firms by more than 5 percent. The substantial positive spillovers not only justify, to some extent, Chinas FDI policy setting, but also indicate that China is likely to continue to benefit from attracting more FDI inflow in the future.

Foreign direct investment in R&D and domestic entrepreneurship in China’s manufacturing industries

This paper argues that internationalization of innovation and the related spillovers can also affect the likelihood of firm entry and exit into an industry. By making use of firm-level panel data from China over the period 2005 to 2007, this paper examines the impact of foreign direct investment (FDI) in research and development (R&D) and the related linkages on entry and exit likelihoods of domestic firms in (i) transport equipment and (ii) electrical machinery and equipment manufacturing industries. In order to evaluate the region-of-origin effect, this paper also separately examines the impact of FDI in R&D originating from (i) all countries except Hong Kong, Macau and Taiwan and (ii) Hong Kong, Macau and Taiwan. Furthermore, the impact of FDI in R&D on entry and exit of Chinese firms in the two industries is examined by splitting the data into large and small firms within the two industries. The results of the pooled probit regression reveal that FDI in R&D and the related spillovers can have a significant impact on the likelihood of entry and exit of domestic firms in transport equipment and electric machinery and equipment industries. The empirical analysis also suggests that the impact of changes in FDI in R&D and the related spillovers varies across firm size.

Foreign Entry and Firm R&D: Evidence from Chinese Manufacturing Industries

By making use of firm-level panel data from 2005 to 2007, this paper empirically examines the relationship between research and development (R&D) behaviour and the presence of foreign firms in Chinas four major manufacturing industries. The manufacturing industries considered are (1) car manufacturing, (2) household electrical appliances, (3) electronics and (4) communication equipment manufacturing. We find that the presence of foreign firms has resulted in a significant increase in R&D intensity of all four manufacturing industries in China. While the average R&D intensity in communication equipment manufacturing is the highest, the electronics industry, which has the highest level of foreign presence, has experienced a relatively large increase in R&D intensity. This suggests that Chinas electronics manufacturing sector is responding to rising competition from foreign firms located in China. Foreign presence in Chinas car manufacturing sector is relatively small, and this industry has experienced a relatively small increase in R&D intensity because of foreign presence.

Technical efficiency of food processing in China: the case of flour and rice processing

Purpose - The purpose of this paper is to examine the technical efficiency of wheat and paddy rice processing in China. Understanding the level of technical efficiency of food processing helps to decide whether efforts are warranted to improve this efficiency. Studies on Chinas technical efficiency of flour and rice processing are scarce. This paper fills this gap. Design/methodology/approach - With a unique set of firm-level survey data collected by Chinas State Statistical Bureau, this study adopts a stochastic frontier model to investigate the technical efficiency of flour and rice processing. Findings - The technical efficiency for both flour and rice processing is low in China, being only about 50 per cent. On average, rice processing firms have slightly higher technical efficiency than flour processing firms. It is also found that a significant proportion of firms experienced negative growth of technical efficiency during the time period of investigation. Originality/value - Each year, some 300 million tonnes of wheat and paddy rice are processed in China. Any small improvement in technical efficiency is translated into huge economic gains. Further, a tiny improvement in flour or rice output rate is equivalent to an enormous increase in food supply, contributing to Chinas food security. The paper confirms the need and potential to raise technical efficiency in China for wheat and paddy rice processing.

Entry of Foreign Firms and the R&D Behaviour: A Panel Data Study of Domestic and Foreign Firms in China's Manufacturing Sector

Rapid globalization has resulted in increased competitive pressures. The entry of foreign firms in a host economy increases the level of competition faced by not only the domestic firms but also the existing foreign firms. We argue that domestic firms, especially in developing countries, respond to this situation by increasing their research and development (R&D) spending, whereas the foreign firms decrease their R&D spending. By making use of firm-level panel data from Chinas manufacturing sector, over the period 2005–2007, this paper investigates the impact of the entry of foreign firms on R&D behaviour of domestic and foreign firms. Empirical analysis, based on Tobit and Instrumental Variables Tobit regression, reveals that foreign entry increases the R&D intensity of domestic firms but its impact on R&D intensity of foreign firms is negative. The estimated results are found to be robust across balanced and unbalanced panels.

Transportation infrastructure and rural development in China

Purpose The infrastructure investment is one important source of economic growth in China in the past three decades. However it is not clear to what extent such investment affects development in rural area. The purpose of this paper is to explore this impact both conceptually and quantitatively, and draw policy implications from the empirical exercise. Design/methodology/approach The authors first describe the conceptual link between the transportation infrastructure and rural development, which motivates the empirical model. Then by utilizing an autoregressive distributed lag model, the authors estimate both the short- and long-run impacts of the transportation infrastructure on rural development, in terms of cereal yield and per capita net income of rural households. Findings The authors find that investment in transportation infrastructure positively affects rural development in China. In terms of cereal yield, a 1 percent increase in the road infrastructure (road length) leads to around 0.05 percent increase in cereal yield in the short-, and around 0.19 percent increase in the long-run. In terms of the per capita net income of rural households, a 1 percent increase in the road infrastructure results in around 0.14 percent increase in the short-, and its long-run impact is not statistically significant. The positive impacts lend supports to promote investment in the transportation infrastructure. To this end, in addition to the government funding, the participation of private capital can also be promoted through a number of channels, such as the build-operate-transfer, public-private partnership, and establishment of infrastructure investment bank. Originality/value This study evaluates the impacts of transportation infrastructure on rural development in China. Despite of the importance of infrastructure and rural development, there is a lack of study on the interaction between them. This paper intends to fill in this gap. In addition, implications drawn in this exercise can benefit policy makers not only in China, but also in other developing countries.

Interrelationship among foreign presence, domestic sales and export intensity in Chinese manufacturing industries

ABSTRACT Using panel data on six Chinese manufacturing industries over the period 2005–2007, this article explores the interrelationship among foreign presence, domestic sales and export intensity of local firms. We find that the domestic sales and exports are complementary for local firms in China’s pharmaceutical industry, whereas in the case of the textile, transportation equipment, beverage, communication equipment and general equipment manufacturing industries, domestic sales and exports are substitutes. An increase in the average domestic sales increases foreign presence in all industries. The same applies to an increase in the average export intensity. An increase in the level of competition in China’s textile industry increases the export intensity as well as domestic sales of local textile firms. However, an increase in the level of competition in the pharmaceutical industry leads to a very large decrease in export intensity of local pharmaceutical firms. In the case of China’s transportation equipment manufacturing industry, an increase in the level of competition decreases domestic sales of local firms. Furthermore, an increase in the firm size increases domestic sales of Chinese firms in all six manufacturing industries.

Foreign direct investment, domestic sales and exports of local firms: a regional perspective from China

ABSTRACT Using a simultaneous equations model, this paper investigates how/whether the presence of foreign direct investment (FDI) affects the performance of local firms in Chinas (1) leather shoe manufacturing and (2) textile and garment manufacturing industries. We use the value of sales (total revenue) as a measure of firm performance in domestic and export markets. The distinguishing feature of this paper is the use of an FDI presence measure that takes the regional dimension into account. The empirical analysis presented in this paper reveals that the presence of FDI leads to a significant positive impact on the domestic sales and export intensity of local firms in both industries. This result is found to be robust to alternative measures of FDI. Based on the result, it is recommended that, in order to maximize the benefits from inward FDI, Chinese policy-makers must encourage domestic and foreign-invested firms to locate in close geographical proximity.

The Role of Geographical Proximity in FDI Productivity Spillovers in China

The book explores the implications of both the extension of the market into key parts of the Chinese economy and the integration of China into the global economy. The main focus of the book is on the role and nature of China’s financial system and its ability to transform enterprise and household behaviour and the performance of investment finance, notably in the context of a two-way flow of foreign direct investment. All the extensive chapters highlight the issue of sustainability – some see the incompleteness of market reform as a problem; others are more willing to accept a pragmatic blending of the operation of the free market and government intervention.