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Domestic equity control, capital accumulation and welfare: theory and China's evidence

journal contribution
posted on 2002-08-01, 00:00 authored by Chi-Chur Chao, W L Chou, E S H Yu
A review of the literature reveals that the study on the impact of permitting foreign ownership in the form of joint ventures or wholly owned has been largely confined to the firm-level variables, i.e., firm output, price, revenue and profits. Nonetheless, the full ramifications of foreign ownership on macro, country-level variables, e.g., capital accumulation and economic welfare, remain by and large unexplored. The purpose of this paper is, therefore, to fill this lacuna by developing a simple framework to examine how equity controls affect accumulation of domestic assets and how the resulting assets accumulation affects outputs and national welfare. The implications of domestic equity controls on sectoral output and national welfare deduced will be tested using cross-section data for the Chinese economy. To accomplish the above objectives, we organise this paper as follows. Section 2 presents a dynamic, open economy with both domestic-owned and foreign- funded enterprises. A domestic equity requirement is imposed on foreign firms, and its impacts on the accumulation of domestic assets and welfare will then be examined. Section 3 provides an empirical study of changes in domestic assets on China's industry outputs. Section 4 offers some concluding remarks.

History

Journal

World economy

Volume

25

Issue

8

Pagination

1115 - 1127

Publisher

Blackwell Publishers

Location

Oxford, Eng.

ISSN

0378-5920

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2002, Blackwell Publishers

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