《《Trade and foreign direct investment in China a political》.pdfVIP

Journal of International Economics 58 (2002) 335–358 /locate/econbase Trade and foreign direct investment in China: a political economy approach Lee G. Branstettera,c, Robert C. Feenstrab,c , * aSchool of Business, Columbia University, New York, NY 10027 USA bDepartment of Economics, University of California, Davis, CA 95616, USA cNational Bureau of Economic Research, Cambridge, MA 02138 USA Received 18 October 1999; received in revised form 5 February 2001; accepted 30 June 2001 Abstract We view the political process in China as trading off the social benefits of increased trade and foreign direct investment against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman [Am. Econ. Rev. 84 (1994) 833; The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati, MIT Press, Cambridge (1996) 199] is used to derive an empirically estimable government objective function. The key structural parameters of this model are estimated using province-level data on foreign direct investment and trade flows in China, over the years 1984–1995. We find that the weight applied to consumer welfare is between one-seventh and one-quarter of the weight applied to the output of state-owned enterprises.  2002 Elsevier Science B.V. All rights reserved. Keywords : China; WTO; Foreign direct investment; Political economy JEL classification : F21; H32 1. Introduction In recent years, few developments in international economics have elicited more interest or stirred more controversy than the sudden emergence of China as a