Eunsuk Hong and Laixiang Sun :
082_DP100 Foreign Direct Investment and Full Factor Productivity in China
JEL Classification:
D62; F21; F23; O33; O47 ; P33
Abstract:
This paper develops a spatial dynamic model to assess the total-factor productivity (TFP) effects of externalities generated by foreign direct investment (FDI). The model is capable of disentangling TFP effects from capital accumulation effects and introducing spatial interdependence based on theoretical derivation rather than spatial statistical tests. An application of this model to a panel dataset of China at the provincial level over 1980-2005 shows a strong positive impact of FDI externalities on TFP. Moreover, the incorporation of FDI externalities, structural change, and spatial interdependence into neoclassical growth empirics provides a much improved account of interprovincial variations in income levels and economic growth.Keywords: Foreign direct investment; Total factor productivity; Spatial econometrics; China.
