Abstract：China’s special decentralization is operated under political centralization. Political and economical incentives bring fierce competition for foreign direct investment between local governments. This will reduce the quality of foreign direct investment, and increase multinational companies’ competitiveness in the home market, which will in turn prevent foreign firms’ technology spillovers. This paper examines such effects with provincial panel data. Empirical evidence suggests that foreign direct investment can increase the whole country’s total factor productivity, but the fierce competition will reduce such influence; foreign direct investment will increase the eastern area’s productivity and reduce the western area’s productivity; competition between local governments will not reduce the effects in the eastern area but will worsen the situation in the western area.
2011, Vol. 1 
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