Economic growth, local industrial development and inter-regional spillovers from foreign direct investment: Evidence from China

In many countries inward foreign direct investment (FDI) typically concentrates in a few regions. However, there is little empirical evidence on whether spatially concentrated FDI boosts economic growth in other regions within the same country. We use a dataset that covers 96% of Chinese cities from 1996 to 2004 and find that “inter-regional spillovers” from FDI concentrated in China's coastal cities have a positive and significant effect on the growth of inland cities. In addition, an inland city's industrial development affects its absorptive capacity to gain such inter-regional spillovers from coastal FDI.

► Examines whether FDI on coastal region in China generates inter-regional spillovers on the inland cities' economic growth. ► We test whether an inland city's local industrial development affects its ability to gain such inter-regional spillovers. ► We find positive spillovers from the coastal FDI to the inland regions. ► Local industrial development increases an inland city's absorptive capacity for reaping spillovers from coastal FDI.