TY  - JOUR
AU  - Branstetter,Lee G.
AU  - Feenstra,Robert C.
TI  - Trade and Foreign Direct Investment in China:  A Political Economy Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7100
PY  - 1999
Y2  - April 1999
UR  - http://www.nber.org/papers/w7100
L1  - http://www.nber.org/papers/w7100.pdf
N1  - Author contact info:
Lee G. Branstetter
Heinz College
School of Public Policy and Management
Department of Social and Decision Sciences
Carnegie Mellon University
Pittsburgh, PA  15213
Tel: 412/268-4649
E-Mail: branstet@andrew.cmu.edu

Robert C. Feenstra
Department of Economics
University of California, Davis
One Shields Avenue
Davis, CA  95616
Tel: 530/752-7022
Fax: 530/752-9382
E-Mail: rcfeenstra@ucdavis.edu
AB  - 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 (1994, 1996) 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-fifth and one-twelfth of the weight applied to the output of state-owned enterprises.  We find that governmental preferences have shifted over time, but even in recent periods the weight on consumer welfare is only one-half of the weight on state-owned enterprises.  This suggests that China may find it politically difficult to follow through with liberalizing its trade and investment regimes, such as under its WTO accession proposal.
ER  -