Assessing Positive and Negative Spillovers of Non-local Direct Investments in Chinese Cities: An Institutional-Based Model

The issues of how foreign direct investments (FDIs) affect a host country is a much discussed yet often misunderstood topic of relevance to researchers and policy makers. While multinational firms emphasize, highlight, and argue for their positive impacts (called, positive spillovers), their negative impacts are well known. These impacts cut across a host country’s social, economic, and developmental domains, creating much heated debates. Up till now, the findings on FDIs’ spillover effects in the literature are non-conclusive.
The proposed study uses 300 Chinese cities as study units to examine how two types of non-local investments: Overseas Chinese Investments (OCIs, that is, investments from Hong Kong, Macau and Taiwan) versus Other Non-local Direct Investments (FDIs) in these cities over the last 10 years. Our study examines a broad range of spillovers, including conventional ones such as economic growth (Borenszteina, Gregoriob, and Lee, 1998), labor productivity (Aitken and Harrison, 1999; Liu et al, 2000; Kathuria, 2000), and beyond, such as innovation, pollution, and income inequalityeducation and health (Antweiler, Copeland and Taylor, 2001; Tsai, 1995). In addition to assessing the effects of OCIs and FDIs on these variables, we will pay attention to two moderating constructs: (1) Social Network (or guanxi) between city government and origin of OCIs and (2) degree of marketization the city assumes. These two constructs enable us to study how respective social institutional forces, Guanxi and Institution Openness enhance the investments’ positive and negative spillovers.