Branstetter, Lee G. <br/><br/>
Trade and Foreign Direct Investment in China:  A Political Economy Approach / 
Lee G. Branstetter, Robert C. Feenstra. 
 - Cambridge, Mass.  National Bureau of Economic Research  1999. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w7100 .
 - Working Paper Series (National Bureau of Economic Research)  no. w7100. .
<br/><br/> April 1999. 
<br/><br/> 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. 
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