FDI, spillover, and government subsidy: Micro-Econometric evidence from China

ABSTRACT

By analysing comprehensive firm data from 1999 to 2013 categorized by zip code, we find that Foreign Direct Investment (FDI) companies consistently received more local government subsidies in China. When comparing FDI within the same county and year, it becomes evident that FDI creates positive growth and productivity spillovers for other businesses in the same zip code. Furthermore, there is additional evidence to support the amenities channel as a possible productivity spillover channel. This paper makes a significant contribution to the debate regarding FDI's spillover effects at a disaggregated level.

KEYWORDS:

• FDI
• spillover
• China
• subsidy

JEL CLASSIFICATION:

• F21
• H20
• O10

Acknowledgement

We gratefully acknowledge financial support from the National Social Science Foundation of China (20BJL023).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ https://www.sohu.com/a/251272505_712322.

² For example, please see China ‘treats foreign firms unfairly’ at https://www.bbc.com/news/business-13538066.

³ Table A1 contains the definitions for all of the variables used in the paper.