Credit Constraints and FDI Spillovers in China

31 Pages Posted: 29 Nov 2011

See all articles by Natasha Agarwal

Natasha Agarwal

affiliation not provided to SSRN

Chris Milner

University of Nottingham - School of Economics

Alejandro Riano

University of Nottingham - Faculty of Law and Social Sciences

Date Written: November 29, 2011

Abstract

This paper provides firm-level evidence on the way in which credit constraints affect FDI spillovers. Using a panel of approximately 20,000 Chinese manufacturing firms over the period 2001-2005, we show that credit constrained domestic firms have lower (even negative) FDI spillovers, with their reduction in the spillover effect being systematically greater in sectors with higher levels of external financial dependence. Moreover, non-state domestic firms in financially dependent sectors have lower from FDI spillovers when compared to the state-owned domestic firms. We also show that domestic firms in sectors that are capital-intensive, highly tangible, and that manufacture durable and highly tradable goods benefit from larger FDI spillovers compared to firms in labor-intensive sectors. Our findings highlight the importance of credit constraints, host country financial institutions in determining the extent of FDI spillovers.

Keywords: FDI spillovers, credit constraints, China

JEL Classification: F23, O1, O33, G31

Suggested Citation

Agarwal, Natasha and Milner, Chris and Riano, Alejandro, Credit Constraints and FDI Spillovers in China (November 29, 2011). Available at SSRN: https://ssrn.com/abstract=1966037 or http://dx.doi.org/10.2139/ssrn.1966037

Natasha Agarwal

affiliation not provided to SSRN ( email )

Chris Milner (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Alejandro Riano

University of Nottingham - Faculty of Law and Social Sciences ( email )

Nottingham, NG8 1BB
United Kingdom

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