Vertical Spillover Effects of Multinationals on Chinese Domestic Firms Via Supplier–Customer Relationships

21 Pages Posted: 21 Jan 2014

See all articles by Faqin Lin

Faqin Lin

Central University of Finance and Economics (CUFE) - School of Economics

Chao Zhang

University of International Business and Economics (UIBE) - School of International Trade and Economics

Lin Wang

Chinese Academy of Social Sciences (CASS) - Institute of Economics

Date Written: November-December 2013

Abstract

Foreign direct investment (FDI) can benefit domestic firms in the host country. Using firm‐level data for China, we find statistically positive vertical spillover effects of multinational enterprises on the performance of domestic firms through backward and forward supplier–customer relationships. The spillover effects are mainly from large multinational enterprises and are greater for state‐owned firms and in poor regions. Our results are robust for both parametric regression and nonparametric matching techniques. Our findings have strong policy implications: while regulations relating to building business relationships with domestic firms when seeking foreign direct investment should be established, such policies should be aimed at private firms, big multinationals and less developed regions.

Keywords: foreign direct investment, multinational enterprises, supplier–customer relationships, vertical spillover effects

JEL Classification: F21, L14, O53

Suggested Citation

Lin, Faqin and Zhang, Chao and Wang, Lin, Vertical Spillover Effects of Multinationals on Chinese Domestic Firms Via Supplier–Customer Relationships (November-December 2013). China & World Economy, Vol. 21, Issue 6, pp. 37-57, 2013, Available at SSRN: https://ssrn.com/abstract=2382303 or http://dx.doi.org/10.1111/j.1749-124X.2013.12045.x

Faqin Lin (Contact Author)

Central University of Finance and Economics (CUFE) - School of Economics ( email )

Beijing
China

Chao Zhang

University of International Business and Economics (UIBE) - School of International Trade and Economics ( email )

10 East Huixin Street
Chaouang District
Beijing, 100029
China

Lin Wang

Chinese Academy of Social Sciences (CASS) - Institute of Economics ( email )

2 Yuetan Beixiaojie
Beijing, Beijing
China

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