1 Assessing the Impact of China’s WTO Accession on Investment

During the early 1990s, foreign direct investment (FDI) in China boomed, subsequently claiming a large share of all Foreign Direct Investment in developing countries. However, the rate of growth in FDI slowed in the later 1990’s, as investors ’ high expectations failed to fully materialize. With China’s accession to the WTO at long last a reality, FDI growth has once again picked up. This paper formally explores the linkage between WTO accession and investment in China over the next two decades. The effects of a number of features of China’s accession are examined, including: the removal of tariffs and quotas, the potential for improved productivity in the automobile sector due to production rationalization, and finally, the liberalization of rules governing direct trade and foreign investment in the service sectors. We find that investment and capital stocks increase substantially as a result of China’s accession. Moreover, accession doubles the extent of foreign ownership of Chinese assets relative to the no-accession baseline by 2020. Central to this increas