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Ownership Biases and FDI in China: Evidence from Two Provinces

Published online by Cambridge University Press:  20 January 2017

Yasheng Huang
Yasheng Huang*
Affiliation:
MIT Sloan School of Management
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Abstract

Jiangsu and Zhejiang are of two of China's most prosperous and dynamic provinces. This paper first presents a factual account of two empirical phenomena: 1) FDI has played a more substantial role in the economic development of Jiangsu than in Zhejiang, and 2) ownership biases against domestic private firms in Jiangsu were more substantial than in Zhejiang. The paper hypothesizes that there is a connection between these two empirical phenomena. Specifically, ownership biases against domestic private firms increase preferences for FDI because FDI provides a measure of relative property rights security. Thus a biased domestic private firm has an incentive to move its assets and/or future growth opportunities to the foreign sector. The paper uses two private-sector surveys—one conducted in 1993 and the other in 2002—to provide an empirical test of this hypothesis. Our analysis shows, controlling for a variety of firm-level attributes and industry and regional characteristics, those private firms which perceive ownership biases to be more severe are more likely to form joint ventures with foreign firms.

Keywords

ChinaFDImultinational corporations
Type
Article
Information
Business and Politics , Volume 9 , Issue 1 , April 2007 , pp. 1 - 45
Copyright
Copyright © V.K. Aggarwal 2007 and published under exclusive license to Cambridge University Press 

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