Trade and Foreign Direct Investment in China: a Political Economy Approach
49 Pages Posted: 10 Jun 1999 Last revised: 29 Nov 2022
Date Written: April 1999
Abstract
We view the political process in China as trading off the social benefits of increased trade and foreign direct investment, against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman (1994, 1996) is used to derive an empirically estimable government objective function. The key structural parameters of this model are estimated using province-level data on foreign direct investment and trade flows in China, over the years 1984-1995. We find that the weight applied to consumer welfare is between one-fifth and one-twelfth of the weight applied to the output of state-owned enterprises. We find that governmental preferences have shifted over time, but even in recent periods the weight on consumer welfare is only one-half of the weight on state-owned enterprises. This suggests that China may find it politically difficult to follow through with liberalizing its trade and investment regimes, such as under its WTO accession proposal.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
China's FDI and Non-Fdi Economies and the Sustainability of Future High Chinese Growth
By John Whalley and Xian Xin
-
Foreign Investment with Endogenous Protection
By Gene M. Grossman and Elhanan Helpman
-
Foreign Direct Investment, Endogenous Tariffs, and Preferential Trade Agreements.
-
By Elissa Braunstein and Gerald Epstein
-
Reevaluating the Role of Trade Agreements: Does Investment Globalization Make the WTO Obsolete?
-
Reevaluating the Role of Trade Agreements: Does Investment Globalization Make the WTO Obsolete?
-
Trade Imbalances, International Investment, and a Limitation of Lerner's Symmetry Theorem
-
Are US Multinationals Making Rational Offshoring Decisions? A Gravity Model Approach
By Vrinda Gupta