Hold Your Enemies Closer: In Search of Positive Impacts of Horizontal Foreign Direct Investment on Domestic Firms

21 Pages Posted: 30 Oct 2009

See all articles by Yi Lu

Yi Lu

School of Business, University of Hong Kong

Joyce Ni

University of Hong Kong

Zhigang Tao

The University of Hong Kong - School of Business

Date Written: January 2009

Abstract

Existing studies have often failed to find positive impacts of horizontal FDI on domestic firms. We argue that the two effects underpinning the impacts of horizontal FDI (i.e., the positive spillover effect and the negative competition effect) have different degrees of attenuation with distance. As FDI is often distributed unevenly across space, studies without accounting for the geographic distance between domestic firms and foreign multinationals are prone to obtain inconclusive results regarding the impacts of horizontal FDI. Using annual surveys of China's manufacturing firms for the period of 1998-2005, we formally account for the distance between domestic firms and foreign multinationals, and find that domestic firms benefit from the presence of foreign multinationals located nearby but suffer from those located in more remote areas.

Keywords: Foreign Direct Investment, Spillover Effect, Competition Effect, Geographic Distance

JEL Classification: F2, O1, R1, O3

Suggested Citation

Lu, Yi and Ni, Juan and Tao, Zhigang, Hold Your Enemies Closer: In Search of Positive Impacts of Horizontal Foreign Direct Investment on Domestic Firms (January 2009). Available at SSRN: https://ssrn.com/abstract=1495622 or http://dx.doi.org/10.2139/ssrn.1495622

Yi Lu (Contact Author)

School of Business, University of Hong Kong ( email )

Rm 730, Meng Wah Complex
Pokfulam Road
Hong Kong
Hong Kong
(852) 2241-5245 (Phone)
(852) 2858-5614 (Fax)

HOME PAGE: http://www.fbe.hku.hk/~luyi

Juan Ni

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Zhigang Tao

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China
(852) 2857-8223 (Phone)
(852) 2858-5614 (Fax)

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