FDI and spillovers in China : non-linearity and absorptive capacity

Using a fixed effect variance decomposition model we estimate SURmodels to analyse FDI spillovers from contagion and spillovers fromcompetition on local firms in China. While the former type of spillovermainly depends on the degree of foreign presence, the latter kind is relatedto how foreign and local firms interact. The main conclusion is that FDIhas been beneficial for the Chinese economy but that spillovers are notevenly distributed across firms and industries. Spillovers from contagiontend to exhibit an inverse U-shaped pattern with respect to the degree offoreign presence at the industry level, whereas spillovers from competitionare more linear. Industries with high absorptive capacity and/or highefficiency are the ones best equipped to take advantage of spillovers fromforeign-owned firms.QC 20120214