Journal of International Business Studies

, Volume 40, Issue 7, pp 1113–1130 | Cite as

Do local manufacturing firms benefit from transactional linkages with multinational enterprises in China?

Article

Abstract

This paper examines the linkage effects of foreign direct investment (FDI) on firm-level productivity in Chinese manufacturing. It is found that FDI generates positive vertical linkage effects in Chinese manufacturing at both the national and regional levels, and limited positive horizontal spillovers at the regional level. While OECD firms gain from both vertical and (probably) horizontal linkages, Hong Kong, Macao and Taiwanese firms benefit only from backward linkage effects. In the domestic sector, in which we are most interested, both state-owned enterprises (SOEs) and non-SOEs are hurt by competition from foreign firms in the same industries. While SOEs gain from vertical linkages with foreign firms, non-SOEs are unable to do so. The patterns of productivity spillovers from FDI in Chinese manufacturing seem to be determined by one key factor – the technological capabilities of the firms involved. Important data limitations and policy implications of this research are discussed.

Keywords

FDI horizontal and vertical linkages firm and sector groupings technological capabilities 

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Copyright information

© Academy of International Business 2009

Authors and Affiliations

  1. 1.Southwestern University of Finance and EconomicsChengduChina
  2. 2.School of Management, Birkbeck College, University of LondonLondonUK
  3. 3.School of Management, University of BradfordBradfordUK
  4. 4.The York Management School, University of YorkHeslingtonUK

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