UCLA Asia Institute

Numerate empirical studies have documented a positive correlation between trade, or the "openness," of an economy and its economic growth. The exceptional performance of some developing economies in the past decades seems to have convinced economists as well as government policy makers that developing countries will benefit from opening up their economies. The traditional concerns over the foreign dominance in domestic economies and the loss of non-renewable resources have slowly subsided. China, like many developing economies have begun pursuing a more open trade framework. Despite the many difficulties China is still facing today, the economic reform started two decades ago has not only transformed the once centrally planned economy to a market-oriented economy, but brought impressive economic growth over a fairly long period of time as well. During this transition, foreign investment and other forms of foreign participation in the economy have played a crucial role. China’s experience is a unique opportunity for us to examine the relationship between the "openness" and the performance of an economy.

Various efforts have been made to analyze the role of trade in economic development. Many suggest that technology transfer associated with trade and foreign investment has a positive impact on the growth and, in particular, the export of local firms. However, few have explicitly studied the role of foreign technology. The present study, using survey based firm data, is an effort to investigate the effects of FDI and technology transfer separately and explicitly. The knowledge flow in this case is whether a firm receives foreign knowledge according to the firm’s managers. The approach has the advantage of encompassing different forms of knowledge inflow. The disadvantage is that the answer could be somewhat objective. In this study, I am most interested in the impact of foreign investment and technology transfer on local firms’ export activities. Furthermore, I also seek to identify factors that might contribute to attract foreign knowledge inflow.