Developing inland China: The role of coastal foreign direct investment and exports^†

Abstract

The design of China's foreign direct investment (FDI) and export promotion policies has intrinsic elements not helpful with the original policy intent to generate spillovers to the wide Chinese economy. Applying panel estimation models to Chinese provincial‐level data for 1993–2008, we examine the impacts of China's coastal FDI and exports on its inland regions. We find that the coastal FDI has overall positive inter‐regional impacts, while the coastal exports do not. Cooperative joint ventures generate positive impacts, but little for wholly foreign‐funded enterprises and even negative for equity joint ventures. The inter‐regional impacts do not exhibit any significance and robustness across exporters' ownership status. We attribute these counter‐intuitive findings to the protectionist behaviours of state‐owned enterprises in equity joint ventures and the prevalence of processing exports.