Foreign Direct Investment and Technology Spillover: Evidence from China

We investigate empirically whether foreign direct investment generates externalities in the form of technology transfer. Using data on 29 manufacturing industries over the period from 1993 to 1998 in the Shenzhen Special Economic Zone of China, we find that foreign direct investment has large and significant spillover effects in that it raises both the level and growth rate of productivity of manufacturing industries, and domestic sectors are the main beneficiaries. We also find that some domestic sectors benefit more than others from the external effects of foreign direct investment. The results are robust to a number of alternative model specifications.

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