Our third contribution is the analysis of specific mechanisms through which FDI spillovers occur.
Several channels have been outlined in the theoretical literature, including the demonstration channel,
the competition channel, the forward and backward linkages, and the labor mobility channel.3
While theories are abound, there has been limited empirical evidence to support these arguments.
Using the data from China, we offer empirical evidence for two specific mechanisms through which
FDI spillovers occur.