The impacts of foreign direct investment on total factor productivity: an empirical study of agricultural enterprises
China Agricultural Economic Review
ISSN: 1756-137X
Article publication date: 28 November 2023
Issue publication date: 22 March 2024
Abstract
Purpose
This paper aims to examine the impact of six possible foreign direct investment (FDI) spillover channels on the total factor productivity (TFP) of Chinese agricultural enterprises and investigate the moderating role of absorptive capacity (technological acumen) on TFP spillover effects.
Design/methodology/approach
Based on data from 118 agricultural and related Chinese industries, the authors employ a multithreshold regression model to empirically analyze the impact of FDI on the TFP of agricultural enterprises and the threshold effect of absorptive capacity. To overcome potential endogeneity problems, the authors select the FDI stock of corresponding USA industries and the industrial access policy index as instrumental variables and re-estimate the model.
Findings
The results suggest foreign-invested agricultural enterprises are more likely to benefit from FDI, while the “aggregate” FDI spillover effect is negative for domestic agricultural enterprises. However, once threshold effects are introduced, the authors find firms “close to” (“far from”) the technological frontier experience statistically significant positive (negative) spillover effects. Similar results are obtained for virtually all FDI spillover channels for firms in both upstream and downstream industries. FDI spillovers, when they occur, can be a two-edged sword – benefiting some firms at the expense of others.
Originality/value
The authors introduce six FDI spillover channels to examine the impact of FDI on the productivity of foreign-invested and domestic agricultural enterprises. Moreover, the authors analyze the threshold effect of firms' absorptive capacity. These findings can help formulate foreign investment introduction policies based on the characteristics of agricultural enterprises with different ownership structures. These results are also beneficial for agricultural enterprises to better exploit FDI spillover effects and improve their productivity.
Keywords
Acknowledgements
Dr Yan Han thanks the Beijing Social Science Foundation (22JJC037) for generous support.
Citation
Han, Y., Smith, R.B.W. and Wu, L. (2024), "The impacts of foreign direct investment on total factor productivity: an empirical study of agricultural enterprises", China Agricultural Economic Review, Vol. 16 No. 1, pp. 20-37. https://doi.org/10.1108/CAER-02-2023-0035
Publisher
:Emerald Publishing Limited
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