FDI Spillover Effects in China’s Manufacturing Sector: New Evidence From Forward and Backward Linkages

Abstract

This paper assesses the spillover effects of inward foreign direct investment (FDI) on firm-level productivity growth in China’s manufacturing sector over the period 2006–2009. We use a detailed industrial classification of data to characterise both intra-industry and interindustry linkages, in contrast to most previous studies for developing countries. Our findings suggest that there is a negative short-term effect and a positive long-run effect from FDI at both linkage levels. Among the interindustry linkages, in line with previous studies, the backward linkage is an important channel for domestic firms to obtain technology spillovers in the long run. However, our results also indicate that forward linkages are equally important, as we find a strongly positive impact of this linkage on productivity growth of domestic manufacturing firms in China.