Location of Repository

Regional Assessment of Openness and Productivity Spillovers in China from 1979 to 2006: A Space-Time Model

By Sélin Ozyurt


This study investigates the impact of inward foreign direct investment (FDI) flows and international trade on labour productivity in 30 Chinese provinces over the period 1979-2006. Since China launched the “open door” policy in 1978, the country has been attracting a growing share of FDI flows and its international trade has been expanding considerably. China’s accession into the WTO in 2001 has also started a new era in its integration into the world economy. In this paper, we model labour productivity as dependent on FDI, foreign trade and other traditional variables such as capital intensity, infrastructure and human capital development. Our empirical analysis improves the existing wide literature by taking into account spatial effects and potential econometric issues they imply. Using recently developed spatial data analysis tools, we explore the pattern, (weather it be negative or positive) and the extent of spatial interaction of labour productivity between regions. Thereby, we extend previous research by testing the explanatory power of additional variables such as spatially lagged independent and dependent variables. The explicit consideration of spatial dependence in the modelling scheme provides us a better understanding of the regional spillovers process. Our results indicate a general trend of spatial autocorrelation in labour productivity during the study period. Put differently, in China, the productivity of a given region is highly determined by those of surrounding regions. In addition, our empirical outcomes yield support for positive and significant impacts of FDI and foreign trade on labour productivity. Furthermore, in China, FDI and trade exhibit a positive spatial pattern and give rise to interregional productivity spillovers among provinces. These findings are robust to a number of alternative spatial weighting matrix specifications.

OAI identifier:

Suggested articles



  1. (1999). A generalized moments estimator for the autoregressive parameter in a spatial model.
  2. and S.Yilmaz (2001) Regional economic convergence: Do policy instruments make a difference ?
  3. (1993). Are there Positive Spillovers from Direct Foreign Investment? Evidence from Panel Data for Morocco.
  4. (1986). Catching Up, Forgoing Ahead, and Falling Behind.
  5. (1999). China’s changing regional disparities during the reform period.
  6. (1970). Computer movie simulating urban growth in the Detroit Region”,
  7. (2003). Do Domestic Firms Benefit from Foreign Direct Investment ?
  8. (2001). Dynamic models in space and time. Geographical Analysis 33:119–140.
  9. (2002). Economic distance, spillovers and cross country comparisons.Journal of Economic Growth,
  10. (1971). Essays in the Theory of Risk-Bearing,
  11. (1999). Estimates of Time to Economic Convergence: An Analysis of Regions of the European Union.
  12. (1991). Export Promotion, Import Substitution and Direct Foreign Investment in Less Developed Countries.
  13. (2004). FDI in Space: Spatial Autoregressive Relationships
  14. (2005). Florax
  15. (2006). Foreign Capital Flows and Economic Growth in east Asian Countries,
  16. (2002). Foreign Direct Investment and Technology Spillover : Evidence from China.
  17. (2000). Foreign Direct Investment in China: A Spatial Econometric Study. The World Economy,
  18. (1992). Foreign Direct Investment, Host Country Characteristics and Spillovers », Ph.D Thesis, Stocholm Scool of Economics.
  19. (1992). Foreign Investment and Technology Transfer : A Simple Model.
  20. (1998). Geographically weighted regression : a natural evolution of the expansion method for spatial data analysis,
  21. (1995). Globalization and the Inequality of
  22. Harrison A.(1999) Do Domestic Firms Benefit from Direct Foreign Investment Evidence from Venezuela?
  23. (1993). Identification of endogenous social effects: the reflection problem.
  24. (1989). Innovation and Learning The Two Faces of R&D.
  25. (1995). Local Indicators of Spatial Association:
  26. (1996). Local Technological Capabilities and Productivity Spillovers from FDI in the Uruguayan Manufacturing Sector.
  27. (2000). Main determinants and impacts of foreign direct investment on China’s economy, OECD, working papers on international investment:
  28. (2000). Measuring the spillover effects: Some Chinese evidence. Papers in Regional Science 79:75–89.
  29. (1994). Multinational Corporations and ProductiveConvergence
  30. (2000). Multinational Enterprises, Technology Diffusion and Host Country Productivity Growth .
  31. (1974). Multinational Firms,
  32. (1995). New Directions in Spatial Econometrics,
  33. (1988). On the Mechanics of Economic Development.
  34. (1996). Productivity Spillovers from Competition between Local Firms and Foreign Affiliates.
  35. (2004). Regional Convergence in the European Union (1985–1999): A Spatial Dynamic Panel Analysis,
  36. (1978). Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model.
  37. (1976). Some principles and results in spatial econometrics.
  38. (1996). SpaceStat tutorial
  39. (1973). Spatial Autocorrelation,
  40. (1986). Spatial Autocorrelation. CATMOG 47, Geo Books.
  41. (1998). Spatial Dependence in Linear Regression Models with an Introduction to Spatial Econometrics”,
  42. (1988). Spatial Econometrics: Methods and Models,
  43. (2006). Spatial econometrics.
  44. (1979). Spatial Econometrics. Saxon House,
  45. (2000). Spatial Heterogeneity, Working Paper n°
  46. (2008). Spatial Panel Econometrics In
  47. (2003). Specification and estimation of spatial panel data models.
  48. (2000). Spillover Effect of Foreign Direct Investments on Turkish Manufacturing Industry,
  49. (1999). Technology transfer and spillovers: Does local participation with multinationals matter?
  50. (1980). Technology Transfer to Overseas Subsidiaries by US-based Firms.
  51. (1954). The Contiguity Ratio and Statistical Mapping, The Incorporated Statistician,
  52. (2001). The Determinants of Host Country Spillovers from Foreign Direct Investment: A Review and Synthesis of the Literature’,
  53. (1999). The effects of unemployment, aggregate wages, and spatial contiguity on local wages: An investigation with German district level data”,
  54. (1995). The Impacts of Misspecified Spatial Interaction in Linear Regression Models.
  55. (1948). The Interpretation of Statistical Maps.
  56. (2007). The origin of spatial interaction.
  57. (1991). Trade, Knowledge Spillovers, and Growth.
  58. (2003). Understanding China’s recent growth experience: A spatial econometric perspective.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.