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Cambridge Journal of Economics Advance Access published online on January 3, 2008
Cambridge Journal of Economics, doi:10.1093/cje/bem037
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© The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Mutual productivity spillovers between foreign and local firms in China

Yingqi Wei, Xiaming Liu and Chengang Wang*

* Bradford University, UK & Hunan University, China, Birbeck College, London and Bradford University, respectively

Address for correspondence: Yingqi Wei, School of Management, Bradford University, Bradford BD9 4JL, UK; email: y.wei1{at}bradford.ac.uk

The existing literature treats advanced technology sourcing as the only cause of reverse productivity spillovers from local to foreign firms and implies that mutual spillovers between foreign and local firms can only happen in the developed world. This paper argues that the diffusion of indigenous technology and local knowledge helps the productivity enhancement of multinationals, so that there can be mutual spillovers even in a developing country. The results from a large-sample firm-level econometric analysis and a comparative case study of seven companies in Chinese manufacturing support this new argument, as mutual spillovers are identified between local Chinese firms and overseas Chinese or OECD-invested firms.

Key Words: Foreign direct investment • Indigenous knowledge • Mutual productivity spillovers

JEL classifications: F23, D62

Manuscript received May 27, 2005; final version received March 27, 2007.


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