The impact of foreign direct investment on domestic supplier industries within Chinese provinces

Abstract

We investigate empirically whether the presence of foreign enterprises in downstream industries has increased intra-provincial backward linkages in China, and what characteristics of foreign direct investment (FDI) contribute to the generation of backward linkages. We conclude that FDI in downstream industries generally has failed to induce higher backward linkages except for the electronic and telecommunications equipment industry. Across industries, those characteristics of FDI, such as the labour productivity gap between indigenous and foreign companies, whether FDI is from Hong Kong/Macau/Taiwan or other countries and whether FDI is wholly owned or jointly owned, appear less influential on the backward linkages than the activities of foreign enterprises (e.g. value-added activities and import and export activities).