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2009•China Economic QuarterlyRequires access

Trade-off between FDI and Domestic Investment:From the Industrial Organization Perspective

Cheng Pei-gang, Z Yingheng, Yin ZhiYang

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Abstract

The paper proposes a theoretical model of the effect of FDI on domestic investment in the same industry.We show that there is a threshold of the stock of FDI under which FDI has the crowding-in effect on domestic investment,and above which FDI has the crowding-out effect on domestic investment.Comparative static shows that the strength of the FDI spillover effect,FIEs' costs,the domestic enterprises' costs and their initial number are the main determining factors.Empirical results from an 18-sector panel dataset support the theoretical conclusions.

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What this paper is about

The paper proposes a theoretical model of the effect of FDI on domestic investment in the same industry.We show that there is a threshold of the stock of FDI under which FDI has the crowding-in effect on domestic investment,and above which FDI has the crowding-out effect on domestic investment.Comparative static shows that the strength of the FDI spillover effect,FIEs' costs,the domestic enterprises' costs and their initial number are the main determining factors.Empirical results from an 18-sector panel dataset support the theoretical conclusions.

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OpenAlex reports 2 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

The paper proposes a theoretical model of the effect of FDI on domestic investment in the same industry.We show that there is a threshold of the stock of FDI under which FDI has the crowding-in effect on domestic investment,and above which FDI has the crowding-out effect on domestic investment.Comparative static shows that the strength of the FDI spillover effect,FIEs' costs,the domestic enterprises' costs and their initial number are the main determining factors.Empirical results from an 18-sector panel dataset support the theoretical conclusions.

Key concepts: Foreign direct investment, Spillover effect, Stock (firearms), Crowding out, Economics, Investment (military), Empirical research, International economics

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