Foreign direct investment and technology spillovers in China's manufacturing sector

This paper explores the technology spillovers of foreign direct investment in China's manufacturing sector in 2003. Using a simultaneous equation model estimated over a comprehensive firm level data set, we find that the foreign direct investment in China generates significant and positive technology spillovers to domestic firms, with a 1 per cent increase in the foreign presence promoting domestic firms' labour productivity by more than 5 per cent. The substantial positive spillovers not only to some extent justify China's FDI policy setting, but also indicate that China is likely to continue to benefit from attracting more FDI inflow in the future