Foreign Direct Investment and China’s Productivity Growth during the 1997 Asian Financial Crisis
Foreign Direct Investment and China’s Productivity Growth during the 1997 Asian Financial Crisis

Summary/Abstract: The study estimates the fixed effect model using cross–section weights to estimate panel EGLS for 7 years in 29 regions of China. Though for the sample period, foreign direct investment influences productivity positively, the effect is very lower compared to other factors in the model. Conversely, labor has a very high influence on productivity for the period under consideration. Nevertheless, the years after 1997 have shown more productivity growth compared to the years before 1997. This is probably due to the fact that the government acted quickly to recover by boosting the external demand. Consequently, the contribution of export on productivity growth is significantly large. As long as China’s productivity keeps growing, high technological foreign direct investments will continue to flow into the economy. Chinese government should continue to invest in human capital to match with high technology embodied in foreign direct investments for the economy to continue experiencing high productivity growth.

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