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Foreign Direct Investment learning and vintage: Effects on Productivity in Chinese Regional Economies

신종국|정용훈|이성훈
한국경제통상학회 (The Korean Economic and Business Association)|2023.05|경제연구 (Journal of Economics Studies)|제41권 제2호|pp. 49-70

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learningProductivityFDIVintage CapitalChinese Regional Economy
주제분류경제학

초록

Foreign Direct Investment (FDI) embodies new technologies and systems. It plays a crucial role as a conduit of knowledge from the developed country to the host country, which in turn is an important channel for productivity improvement in developing countries. This study analyzes the effect of FDI on productivity through the lens of the vintage effect and the learning effect. To our knowledge, the investigation of the FDI vintage effect on productivity via knowledge transfer is new to the literature. Following the capital vintage models, we assume that FDIs of different vintages are imperfect substitutes and the latest vintage has the highest productivity. We adopt a version of the endogenous growth model in which the accumulation of human capital and its interplay with FDI are the engine of growth to analyze and derive a decomposition of the vintage and learning effects. We use a Chinese provincial panel dataset for our empirical analysis. Leveraging on our theoretical model, we build our empirical specification and estimate these effects. Our empirical findings support the theoretical predictions of our model. We verify a negative level effect of FDI on TFP in the short run and a positive rate effect in the long run. We also suggest several policy implications relating to FDI and Chinese economic development based on our results.

Abstract

Foreign Direct Investment (FDI) embodies new technologies and systems. It plays a crucial role as a conduit of knowledge from the developed country to the host country, which in turn is an important channel for productivity improvement in developing countries. This study analyzes the effect of FDI on productivity through the lens of the vintage effect and the learning effect. To our knowledge, the investigation of the FDI vintage effect on productivity via knowledge transfer is new to the literature. Following the capital vintage models, we assume that FDIs of different vintages are imperfect substitutes and the latest vintage has the highest productivity. We adopt a version of the endogenous growth model in which the accumulation of human capital and its interplay with FDI are the engine of growth to analyze and derive a decomposition of the vintage and learning effects. We use a Chinese provincial panel dataset for our empirical analysis. Leveraging on our theoretical model, we build our empirical specification and estimate these effects. Our empirical findings support the theoretical predictions of our model. We verify a negative level effect of FDI on TFP in the short run and a positive rate effect in the long run. We also suggest several policy implications relating to FDI and Chinese economic development based on our results.

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