FDI Liberalization and Productivity Dispersion: Evidence from China's FDI Deregulation

40 Pages Posted: 14 Aug 2023

See all articles by Lingduo Jiang

Lingduo Jiang

University of International Business and Economics

Shuangshuang Liu

University of International Business and Economics

Guofeng Zhang

University of International Business and Economics

Abstract

This paper empirically investigates whether FDI liberalization affects productivity dispersion, a potential source of resource misallocation. The identification uses the FDI deregulation policy implemented by the Chinese government in 2002, in which some industries became being foreign investment encouraged from being restricted. Using firm-level data that cover most of the manufacturing sectors in China for the period 1998-2007, our difference-in-differences estimation results show that FDI deregulation policy reduces productivity dispersion implying an improvement of resource reallocation. Moreover, the exiting of zombie firms contributes to the positive effect of FDI liberalization on the efficiency of resources allocation. In addition, the heterogeneous analyses suggest that the comparative disadvantage industries are more sensitive to FDI liberalization.

Keywords: FDI Deregulation, Productivity Dispersion, Resource Misallocation

Suggested Citation

Jiang, Lingduo and Liu, Shuangshuang and Zhang, Guofeng, FDI Liberalization and Productivity Dispersion: Evidence from China's FDI Deregulation. Available at SSRN: https://ssrn.com/abstract=4540624 or http://dx.doi.org/10.2139/ssrn.4540624

Lingduo Jiang

University of International Business and Economics ( email )

Shuangshuang Liu (Contact Author)

University of International Business and Economics ( email )

10 Huixindongjie, Chaoyang District
Beijing, 100029
China

Guofeng Zhang

University of International Business and Economics ( email )

10 Huixindongjie, Chaoyang District
Beijing, 100029
China

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