| Abstract |
Inward foreign direct investment (FDI) in China has been accompanied by rapid economic growth. A growing literature has emerged in recent years examining the role of FDI on Chinese economic growth. However, measuring the effects of FDI has been challenging, because other factors which influence firms' productivity occur in parallel with FDI, and because economic growth also simultaneously attracts FDI. To address these endogeneities, this paper analyzes the effects of a change in the FDI regulations on the productivity growth of Chinese industries using Chinese industry-level panel data. Our difference-in-differences estimates show that these industries experienced significantly larger increase in foreign firms' sales. We also find that this increase in FDI resulted in an increase in labor productivity and in total factor productivity of the affected industries and local industries, but we do not find that they experienced significantly larger inflows of FDI or productivity growth before 2002, which provides evidence against endogeneity concerns. |