A general equilibrium analysis of FDI growth in Chinese services sectors



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Latorre Muñoz, María Concepción and Yonezawa, Hidemichi and Zhou, Ying (2018) A general equilibrium analysis of FDI growth in Chinese services sectors. China Economic Review, 47 . pp. 172-188. ISSN 1043-951X

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Official URL: https://doi.org/10.1016/j.chieco.2017.09.002


This paper analyzes one of the features of the Chinese economic transition, namely, the impact of foreign direct investment (FDI) accruing to advanced services sectors. To that aim we use an innovative computable general equilibrium (CGE) model that includes, in a multi-regional setting, foreign multinationals operating in monopolistic competition. The model is based on data that split the world economy in 2016 into 11 regions (China - US - EU27 - Great Britain -other advanced economies - India - Japan - South East Asia - Latin America - Middle East - Sub Saharan Africa) and 21 sectors. We provide quantitative evidence on several characteristics of the 21 sectors in China, EU27 and the US, as well as other data on the role of China in the global stage, including its evolution since 2004. Several scenarios focusing on the increase of FDI inflows in services, because of the reduction of its FDI barriers, are simulated deriving short and long run results. We find that the impact of more foreign multinationals in services is positive for China but smaller than the one that had been obtained in other previous studies on FDI in manufactures. This is due to the still limited role of services in the Chinese economy and to a crowding out effect that domestic firms experience after the entry of foreign multinationals. On the whole the impact is, however, slightly positive for China, because manufactures benefit from the entry of foreign services multinationals. The rest of regions are unaffected or benefit very slightly, due to the fact that services production is less export oriented and more devoted to private consumption than in the case of manufactures. However, their manufacturing sectors are slightly harmed by the stronger Chinese competition. Many of them manage to more than offset this latter trend through higher exports or FDI in services directed to China.

Item Type:Article
Uncontrolled Keywords:Multinationals; CGE; Consumption-oriented growth; Monopolistic competition; Fragmentation; Vertical integration; China
Subjects:Social sciences > Economics > Commerce
Social sciences > Economics > Econometrics
Social sciences > Economics > World economy
Social sciences > Economics > Finance
JEL:C68, F14, F15, F17, F21
ID Code:54969
Deposited On:09 Apr 2019 13:47
Last Modified:10 Apr 2019 08:49

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