Credit Constraints and FDI Spillovers in China

29 Pages Posted: 10 Jul 2013

See all articles by Natasha Agarwal

Natasha Agarwal

Indian Institute of Foreign Trade

Chris Milner

University of Nottingham - School of Economics

Alejandro Riaño

University of Nottingham

Date Written: June 30, 2013

Abstract

This paper examines whether credit constraints affect Chinese firms’ absorption of productivity spillovers from foreign firms. Using firm-level data for 2001-2005, we find evidence of positive spillovers originating from FDI from countries other than Hong Kong, Macau and Taiwan for non-state owned Chinese firms operating in the same industry and province. Our main finding is that domestic firms operating in industries characterised by a greater reliance on external finance, our measure of credit constraints, enjoy lower (and even negative) spillovers from the activity of foreign-owned firms. This result is robust to the inclusion of a wide variety of other industry-level characteristics interacting with the activity of foreign firms.

Keywords: F230, G310, O100, O330

JEL Classification: FDI spillovers, credit constraints, China

Suggested Citation

Agarwal, Natasha and Milner, Chris and Riaño, Alejandro, Credit Constraints and FDI Spillovers in China (June 30, 2013). CESifo Working Paper Series No. 4313. Available at SSRN: https://ssrn.com/abstract=2291879

Natasha Agarwal

Indian Institute of Foreign Trade ( email )

New Delhi
QUTUB INSTITUTIONAL AREA
NEW DELHI, 110016
India

Chris Milner

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Alejandro Riaño (Contact Author)

University of Nottingham

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