Credit Constraints and Spillovers from Foreign Firms in China

This paper examines whether credit constraints affect Chinese ï¬rms’ absorption of productivity spillovers originating from the activity of foreign-owned ï¬rms. Using ï¬rm-level data for 2001-2005, we ï¬nd evidence of positive spillovers originating from foreign-owned ï¬rms from countries other than Hong Kong, Macau and Taiwan for non-state owned Chinese ï¬rms operating in the same industry and province. Using an index of external ï¬nance dependence to measure credit constraints, we ï¬nd that only non state-owned ï¬rms operating in industries with external ï¬nance dependence below the index median exhibit signiï¬cantly positive spillovers from the activity of foreign ï¬rms.