Inward FDI and Host Country Productivity: Evidence from China’s Electronics Industry

Abstract

There has been a great deal of research examining whether foreign affiliates exhibit higher levels of productivity than local firms (see, for example, Aitken and Harrison, 1999). The premise for this is that the firm-specific assets of transnational corporations (TNCs) increase productivity in FDI-receiving firms (Egger and Pfaffermayr, 2001). If this is the case, one would expect FDI to enhance overall industry performance as measured, for example, by labour productivity through this direct effect on foreign affiliate performance. Empirical research supports the view that firms with foreign equity participation outperform firms that are entirely locally-owned (see, for example, Blomström and Sjöholm, 1999).