Trading market access for technology? Tax incentives, foreign direct investment and productivity spillovers in China

Ziliang Deng*, Rod Falvey, Adam Blake

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

9 Citations (Scopus)

Abstract

Tax incentives have been adopted worldwide to attract foreign direct investment (FDI) and its superior technology. However whether tax incentives can promote FDI productivity spillovers remains unknown. We develop a static computable general equilibrium (CGE) model of China to explore it. The results suggest that abolishing differential tax system leads to weaker FDI spillovers in the short term. Nonetheless, the reform lifts up the productivity entry threshold for foreign firms, and the surviving domestic firms become more productive and thus more capable of absorbing productivity spillover.

Original languageEnglish
Pages (from-to)675-690
Number of pages16
JournalJournal of Policy Modeling
Volume34
Issue number5
DOIs
Publication statusPublished - Sep 2012

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