GEP Research Paper 09/18
Quantifying Foreign Direct Investment Productivity Spillovers: A Computable General Equilibrium Framework for China
Ziliang Deng, Adam Blake and Rod Falvey
Summary
We construct a static computable general equilibrium model to quantify the endogenous productivity spillovers through four channels from foreign-invested firms to domestic firms in China. The simulations are conducted under both perfect and monopolistic competition.
Abstract
We construct a static computable general equilibrium (CGE) model to quantify the endogenous productivity spillovers from foreign-invested firms to domestic firms, taking the Chinese economy as a case study. The coefficients of four spillover channels are estimated from econometric analysis. The simulations are conducted under two alternative market structures, namely perfect competition and monopolistic competition. Simulation results indicate that the spillover premia are positive in terms of national total output, GDP and welfare. The spillover effect is more prominent when the market structure is relatively monopolistic. FDI spillovers can also result in more product varieties produced by domestic enterprises, and can also help domestic enterprises increase their production scale.
Issued in August 2009
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