- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
Using quarterly data spanning from 1994Q1 to 2014Q4, we find a neutral relationship between foreign direct investment (FDI) and domestic investment in China. However, when we consider the entry mode chosen by foreign investors, we find that whilst equity joint venture (EJV) crowds in domestic investment, wholly foreign-funded enterprise (WFFE) crowds it out. Our results remain robust under alternative estimators and across different time periods. Based on these results, we argue that the Chinese government needs to actively promote the formation of EJV and uses it as the catalyst for industrial upgrading in the economy.
6. Concluding remarks and policy implications
This paper investigates the fundamental relationship between FDI and domestic investment in China from 1994Q1 to 2014Q4. Unlike its predecessors, this paper is novel in its emphasis on the role of entry mode. Specifically, we find that the neutral nexus in China disappears when entry mode is introduced into the analysis. In fact, we find that EJV crowds in domestic investment, but WFFE crowds it out. These relationships remain valid regardless of the estimation techniques and across different subsample periods. Based on our findings, we show that any study on the FDI– domestic investment nexus in China that ignores entry mode is likely to be incomplete. In general, we attribute crowding in between EJV and domestic investment in China to positive spillovers brought about by foreign investors benefiting the Chinese firms. Meanwhile, we suspect that crowding out between WFFE and domestic investment in China originated from market-seeking WFFEs displacing their Chinese competitors. These findings carry several policy implications. First, the Chinese government should be selective in granting preferential treatment and fiscal concessions to foreign investors. For example, the Chinese government should discourage the development of WFFEs as it could be detrimental to the growth trajectory of domestic investment. Second, the Chinese government should provide financial and non- financial supports to indigenous firms wanting to form EJVs with foreign investors. As we have shown the promotion of EJVs generates positive spillovers not only for indigenous partners, but also to the wider Chinese economy through various channels. Last, but not the least, our findings echo the recent call by the Chinese government to reorientate its focus from an export-driven economy to a domestic-led one. However, an important pillar to the success of this attempt hinges on creating an environment that is conducive to sustained growth of domestic investment; and entry mode constitutes a key environmental factor on this front.