The Empirical Analysis Of Inter-industry Spillovers From Foreign Direct Investment In Shandong Province

With the deepening of the economic globalization, the foreign direct investment (FDI) has been more and more important in the world economic status. It brings with equipment, technical know how, management marketing and other skills (Lall, 1997), as well as improves domestic firms' productivity and exports (Costa and de Queiroz 2002). So it is welcomed by several countries. However, with the reducing resource, polluted environment, merged native firms and disappeared native brands, the debate about FDI is more fierce. As the empirical studies have failed to find robust empirical results about the possibility of positive FDI intra-industry spillover effects, the researchers put their eyes on the forward and backward industry in the host country, they found that with the inflow of the foreign investment, the inter-industry firms improved their production efficiency or management level, i.e. inter-industry spillovers appeared.China has attracted a mount of foreign direct investment in the reformed 30 years, and has assumed to be the most attractive country. Shandong Province as a large economic province also attracted nearly 10 percent of the foreign investment in China. This paper is designed to explore the inter-industry spillovers from FDI in Shan dong Province. Based on the literatures, we described the theoretical and empirical analysis of the inter-industry spillovers from FDI. On the first side, we described the effect and generation mechanism; on the second side, we attempt to examine the inter-industry spillover effects from FDI with using industry level data of second industry in Shandong province for the period 2000-2006. Firstly, we establish the lag spillover variables to modify the model, and utilize panel data to find out the existence of FDI inter-spillovers. In an extended model, we utilize the index of technology gap, openness and human resource to examine their impacts on the inter-industry spillover effects from FDI.As a result, we find significantly positive backward spillover effects, but the positive forward FDI spillover effect is not significant. The openness and human resource promote the FDI inter-spillovers, but the technology gap plays a negative role in absorbing the spillover effects. And the human resource plays the most important role in the three factors.At last, we give four suggestions to absorb more FDI spillovers as follows: (1) to increase more connection with the foreign corporation, and make the relationship more closely; (2) to improve the technology containing in the product so as to reduce the technology gap; (3) to attract more foreign investments and enhance the industry guidance; (4) to improve and optimize the structure of human resource.