FDI in China

Journal of Asian Economics 23 (2012) 487–498

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Journal of Asian Economics

FDI and market entry/exit: Evidence from China
Sajid Anwar a,b,1, Sizhong Sun c,* a School of Business, University of the Sunshine Coast, Maroochydore DC, QLD 4556, Australia
IGSB, University of South Australia, Adelaide, SA 5001, Australia c School of Business, James Cook University, Townsville, QLD 4811, Australia b A R T I C L E I N F O

A B S T R A C T

Article history:
Received 4 April 2011
Received in revised form 22 March 2012
Accepted 11 April 2012
Available online 5 May 2012

This paper considers the impact of FDI and FDI-related spillovers on the entry and exit rates of domestic firms in mainland China’s manufacturing sector. Since we suspect that aggregate results obscure differing effects based on the source of the FDI, we disaggregate
FDI into that originating from Hong Kong, Macau and Taiwan (HMT) area and the rest of the world. The empirical analysis, based on 4-digit industry level panel data over the period 2003–2007, reveals that FDI originating from the rest of the world has made a significant contribution to the entry rate of domestic firms in China and the spillover effect arising from backward linkages is also positive and significant. However, FDI originating from HMT area has not encouraged domestic entry, whilst it has contributed to an increase in the exit rate of domestic firms. ß 2012 Elsevier Inc. All rights reserved.

JEL classification:
D01
F23
L10
Keywords:
FDI
FDI-linked spillovers
Entry and exit of firms
China

1. Introduction
Globalisation has resulted in a significant increase in foreign direct investment (FDI) around the globe. An important driver of globalisation is technological progress. Technological progress has contributed to a significant reduction in the cost of coordination of production activities at various locations. As a result, firms are

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