Testing for horizontal and vertical foreign investment spillovers in China, 1998-2007

► Using Chinese firm-level data, we show that foreign investment originating outside of Hong Kong, Macau, and Taiwan has positive effects on individual firm level productivity. ► At sector-level, we find zero or weak positive horizontal externalities (within the same sector) from foreign direct investment (FDI). ► However, our results show that FDI has generated positive productivity spillovers to domestic firms via backward linkages as well as forward linkages.