The role of geographical proximity in FDI productivity spillovers in China

Abstract

This paper examines the impact of geographical proximity to FDI-invested firms on domestic firms’ labour productivity in China, using a comprehensive firm level data set for China’s manufacturing sector from 2005 to 2007. We find a significantly negative effect from the geographical proximity on the productivity of domestic firms, This suggests that the negative effect of fiercer competition owing to geographical proximity to FDI firms (particularly in the short run) may outweigh the positive effect of geographical proximity on domestic firms resulting from the backward and forward linkages and labour mobility.