Do institutions matter for FDI spillovers ? the implications of China's"special characteristics"

The authors investigate how institutions affect productivity spillovers from foreign direct investment (FDI) to China's domestic industrial enterprises during 1998-2007. They examine three institutional features that comprise aspects of China's"special characteristics": (1) the different sources of FDI, where FDI is nearly evenly divided between mostly Organization for Economic Co-operation and Development (OECD) countries and Hong Kong (SAR of China), Taiwan (China), and Macau (SAR of China); (2) China's heterogeneous ownership structure, involving state- (SOEs) and non-state owned (non-SOEs) enterprises, firms with foreign equity participation, and non-SOE, domestic firms; and (3) industrial promotion via tariffs or through tax holidays to foreign direct investment. The authors also explore how productivity spillovers from FDI changed with China's entry into the WTO in late 2001. They find robust positive and significant spillovers to domestic firms via backward linkages (the contacts between foreign buyers and local suppliers). The results suggest varied success with industrial promotion policies. Final goods tariffs as well as input tariffs are negatively associated with firm-level productivity. However, they find that productivity spillovers were higher from foreign firms that paid less than the statutory corporate tax rate.Emerging Markets,Debt Markets,Economic Theory&Research,Investment and Investment Climate,Labor Policies

FDI Spillovers and Industrial Policy: The Role of Tariffs and Tax Holidays

This paper examines how industrial policy – specifically tariff liberalization and tax subsidies – affects the magnitude and direction of FDI spillovers. We examine these spillover effects across the diverse ownership structure of China’s manufacturing sector. Using this approach, we control for policies that are likely to be correlated with both firm-level productivity and industry FDI, thereby limiting the problem of omitted variables and bias associated with estimating the impacts of FDI spillovers. During 1998-2007, the span of our Chinese firm-level data set, both tariffs and FDI tax holidays changed dramatically. Our results highlight the efficacy of vertical FDI spillovers. We find that tariff reforms, particularly tariff reductions associated with China’s WTO ascension, increased the productivity impacts of FDI’s backward spillovers. Tax policy – both corporate income and VAT subsidies – has seemingly drawn FDI into strategic industries that spawn significant vertical spillovers. We conclude that liberalization measures during the critical 1998-2007 period on balance served to enhance productivity growth in Chinese industry.

FDI Spillovers and Industrial Policy: The Role of Tariffs and Tax Holidays

This paper examines how industrial policy – specifically tariff liberalization and tax subsidies – affects the magnitude and direction of FDI spillovers. We examine these spillover effects across the diverse ownership structure of China’s manufacturing sector for 1998 through 2007. We find that tariff reforms, particularly tariff reductions associated with China’s WTO ascension, increased the productivity impacts of FDI’s backward spillovers. Tax policy – both corporate income and VAT subsidies – has seemingly drawn FDI into strategic industries that spawn significant vertical spillovers. We conclude that liberalization measures during the critical 1998–2007 period on balance served to enhance productivity growth in Chinese industry

Industrial Policy and Competition

Using a comprehensive dataset of all medium and large enterprises in China between 1998 and 2007, we show that industrial policies allocated to competitive sectors or that foster competition in a sector increase productivity growth. We measure competition using the Lerner Index and include as industrial policies subsidies tax holidays, loans, and tariffs. Measures to foster competition include policies that are more dispersed across firms in a sector or measures that encourage younger and more productive enterprises. (JEL L11, L25, L52, O14, O25, O47, P31

Essays on Foreign Investment, Agglomeration Economies, and Industrial Policy

Since opening its economy to the outside world in late 1978, China has experienced a massive, protracted, and unexpected economic upsurge, which has attracted the attention of a large and diverse group of researchers. China's three-decade economic reforms have reshaped the economic structure from plan to market, through a variety of policy actions, such as openness to foreign investment and efforts to build economic zones. Economic growth and potential technology transfer are indeed the main rationale behind the Chinese government's aggressive efforts over the past three decades to enhance openness and to increase domestic competition. This dissertation consists of three chapters. All chapters study firm behavior and their policy implications. However, the focus of each chapter is different. The first chapter (coauthored with Ann Harrison and Gary Jefferson) studies how institutions affect productivity spillovers from foreign direct investment (FDI) to China's domestic industrial enterprises. The second chapter separates the effect of agglomeration economies on firm performance (measured by total factor productivity) from the impact of competition and better transport infrastructure. The third chapter (coauthored with Philippe Aghion, Mathias Dewatripont, Ann Harrison, Patrick Legros) tests for the complementarity between competition and industrial policy.The first Chapter (co-authored with Ann Harrison and Gary Jefferson) investigates how institutions affect productivity spillovers from foreign direct investment (FDI) to China's domestic industrial enterprises during 1998-2007. We examine three institutional features that comprise aspects of China's "special characteristics": (1) the different sources of FDI, where FDI is nearly evenly divided between mostly Organization for Economic Co-operation and Development (OECD) countries and Hong Kong (SAR of China), Taiwan (China), and Macau (SAR of China); (2) China's heterogeneous ownership structure, involving state- (SOEs) and non-state owned (non-SOEs) enterprises, firms with foreign equity participation, and non-SOE, domestic firms; and (3) industrial promotion via tariffs or through tax holidays to foreign direct investment. We also explore how productivity spillovers from FDI changed with China's entry into the WTO in late 2001. We find robust positive and significant spillovers to domestic firms via backward linkages (the contacts between foreign buyers and local suppliers). Our results suggest varied success with industrial promotion policies. Final goods tariffs as well as input tariffs are negatively associated with firm-level productivity. However, we find that productivity spillovers were higher from foreign firms that paid less than the statutory corporate tax rate. The second chapter separates the effect of agglomeration economies on firm performance (measured by total factor productivity) from the impact of competition and better transport infrastructure. Consequently, this paper primarily addresses the problem of omitted variable bias in estimating the impact of agglomeration economies on firm performance. The results suggest that firm productivity is improved only by the presence of other firms in the same sector (localization economies). The inclusion of information on road construction does not affect the importance of pure localization economies. However, including a measure of competition in the estimation significantly reduces the importance of localization externalities. The results also suggest that both road-building and competition are positively associated with productivity growth. The results for sub-samples indicate that exporting firms and firms financed by foreign investment benefit more from localization externalities than do their non-exporting and domestically-financed counterparts. The third chapter (co-authored with Philippe Aghion, Ann Harrison, Mathias Dewatripont, and Patrick Legros) argues that sectoral state aid tends to foster productivity, productivity growth, and product innovation to a larger extent when it targets more competitive sectors and when it is not concentrated on one or a small number of firms in the sector. A main implication from our analysis is that the debate on industrial policy should no longer be for or against having such a policy. As it turns out, sectoral policies are being implemented in one form or another by a large number of countries worldwide, starting with China. Rather, the issue should be on how to design and govern sectoral policies in order to make them more competition-friendly and therefore more growth-enhancing. Our analysis suggests that proper selection criteria together with good guidelines for governing sectoral support can make a significant difference in terms of growth and innovation performance. Yet the issue remains of how to minimize the scope for influence activities by sectoral interests when a sectoral state aid policy is to be implemented. One answer is that the less concentrated and more competition-compatible the allocation of state aid to a sector, the less firms in that sector will lobby for that aid as they will anticipate lower profits from it. In other words, political economy considerations should reinforce the interaction between competition and the efficiency of sectoral state aid. A comprehensive analysis of the optimal governance of sectoral policies still awaits further research

Essays on Foreign Investment, Agglomeration Economies, and Industrial Policy

Since opening its economy to the outside world in late 1978, China has experienced a massive, protracted, and unexpected economic upsurge, which has attracted the attention of a large and diverse group of researchers. China's three-decade economic reforms have reshaped the economic structure from plan to market, through a variety of policy actions, such as openness to foreign investment and efforts to build economic zones. Economic growth and potential technology transfer are indeed the main rationale behind the Chinese government's aggressive efforts over the past three decades to enhance openness and to increase domestic competition. This dissertation consists of three chapters. All chapters study firm behavior and their policy implications. However, the focus of each chapter is different. The first chapter (coauthored with Ann Harrison and Gary Jefferson) studies how institutions affect productivity spillovers from foreign direct investment (FDI) to China's domestic industrial enterprises. The second chapter separates the effect of agglomeration economies on firm performance (measured by total factor productivity) from the impact of competition and better transport infrastructure. The third chapter (coauthored with Philippe Aghion, Mathias Dewatripont, Ann Harrison, Patrick Legros) tests for the complementarity between competition and industrial policy.The first Chapter (co-authored with Ann Harrison and Gary Jefferson) investigates how institutions affect productivity spillovers from foreign direct investment (FDI) to China's domestic industrial enterprises during 1998-2007. We examine three institutional features that comprise aspects of China's "special characteristics": (1) the different sources of FDI, where FDI is nearly evenly divided between mostly Organization for Economic Co-operation and Development (OECD) countries and Hong Kong (SAR of China), Taiwan (China), and Macau (SAR of China); (2) China's heterogeneous ownership structure, involving state- (SOEs) and non-state owned (non-SOEs) enterprises, firms with foreign equity participation, and non-SOE, domestic firms; and (3) industrial promotion via tariffs or through tax holidays to foreign direct investment. We also explore how productivity spillovers from FDI changed with China's entry into the WTO in late 2001. We find robust positive and significant spillovers to domestic firms via backward linkages (the contacts between foreign buyers and local suppliers). Our results suggest varied success with industrial promotion policies. Final goods tariffs as well as input tariffs are negatively associated with firm-level productivity. However, we find that productivity spillovers were higher from foreign firms that paid less than the statutory corporate tax rate. The second chapter separates the effect of agglomeration economies on firm performance (measured by total factor productivity) from the impact of competition and better transport infrastructure. Consequently, this paper primarily addresses the problem of omitted variable bias in estimating the impact of agglomeration economies on firm performance. The results suggest that firm productivity is improved only by the presence of other firms in the same sector (localization economies). The inclusion of information on road construction does not affect the importance of pure localization economies. However, including a measure of competition in the estimation significantly reduces the importance of localization externalities. The results also suggest that both road-building and competition are positively associated with productivity growth. The results for sub-samples indicate that exporting firms and firms financed by foreign investment benefit more from localization externalities than do their non-exporting and domestically-financed counterparts. The third chapter (co-authored with Philippe Aghion, Ann Harrison, Mathias Dewatripont, and Patrick Legros) argues that sectoral state aid tends to foster productivity, productivity growth, and product innovation to a larger extent when it targets more competitive sectors and when it is not concentrated on one or a small number of firms in the sector. A main implication from our analysis is that the debate on industrial policy should no longer be for or against having such a policy. As it turns out, sectoral policies are being implemented in one form or another by a large number of countries worldwide, starting with China. Rather, the issue should be on how to design and govern sectoral policies in order to make them more competition-friendly and therefore more growth-enhancing. Our analysis suggests that proper selection criteria together with good guidelines for governing sectoral support can make a significant difference in terms of growth and innovation performance. Yet the issue remains of how to minimize the scope for influence activities by sectoral interests when a sectoral state aid policy is to be implemented. One answer is that the less concentrated and more competition-compatible the allocation of state aid to a sector, the less firms in that sector will lobby for that aid as they will anticipate lower profits from it. In other words, political economy considerations should reinforce the interaction between competition and the efficiency of sectoral state aid. A comprehensive analysis of the optimal governance of sectoral policies still awaits further research

Do Institutions Matter for FDI Spillovers? The Implications of China’s “Special Characteristics”

We investigate how institutions affect productivity spillovers from foreign direct investment (FDI) to China’s domestic industrial enterprises during 1998-2007. We examine three institutional features that comprise aspects of China’s “special characteristics”: (1) the different sources of FDI, where FDI is nearly evenly divided between mostly Organization for Economic Co-operation and Development (OECD) countries and the region known as “Greater China”, consisting of Hong Kong, Taiwan, and Macau; (2) China’s heterogeneous ownership structure, involving state- (SOEs) and non-state owned (non-SOEs) enterprises, firms with foreign equity participation, and non-SOE, domestic firms; and (3) industrial promotion via tariffs or through tax holidays to foreign direct investment. We also explore how productivity spillovers from FDI changed with China’s entry into the WTO in late 2001. We find robust positive and significant spillovers to domestic firms via backward linkages (the contacts between foreign buyers and local suppliers). Our results suggest varied success with industrial promotion policies. Final goods tariffs as well as input tariffs are negatively associated with firm-level productivity. However, we find that productivity spillovers were higher from foreign firms that paid less than the statutory corporate tax rate.

Protective Effect of miR-204 on Doxorubicin-Induced Cardiomyocyte Injury via HMGB1

The toxicity of doxorubicin (DOX) limits its clinical application. Nevertheless, at present, there is no effective drug to prevent DOX-induced cardiac injury. miR-204 is a newly discovered miRNA with many protective effects on cardiovascular diseases. However, little research has been done on the effects of miR-204 on DOX-induced cardiac injury. Our study is aimed at investigating the effect of miR-204 on DOX-induced myocardial injury. An adenoassociated virus system was used to achieve cardiac-specific overexpression of miR-204. Two weeks later, the mice were intraperitoneally injected with DOX (15 mg/kg) to induce cardiac injury. H9c2 myocardial cells were used to validate the role of miR-204 in vitro. Our study showed that miR-204 expression was decreased in DOX-treated hearts. miR-204 overexpression improved cardiac function and alleviated cardiac inflammation, apoptosis, and autophagy induced by DOX. In addition, our results showed that miR-204 prevented DOX-induced injury in cardiomyocytes by directly decreasing HMGB1 expression. Moreover, the overexpression of HMGB1 could offset the protective effects of miR-204 against DOX-induced cardiac injury. In summary, our study showed that miR-204 protected against DOX-induced cardiac injury via the inhibition of HMGB1, and increasing miR-204 expression may be a new treatment option for patients with DOX-induced cardiac injury