Foreign ownership and productivity of joint ventures

A comprehensive survey of the relation between ownership structure and the productivity of joint ventures was conducted, using a unique panel data set of all large- and medium-sized joint ventures in China from 1998 to 2005. The study revealed that foreign participation, particularly from the multinational enterprises (MNE) of Japan, Singapore, the United States, and Europe, significantly improves the total factor productivity (TFP) of joint ventures, while joint ventures invested in by Hong Kong, Macao, and Taiwan (HMT) are less productive than foreign-invested enterprises (FIE). The survey found that ownership structure is important for efficiency in the presence of incomplete contracts and relationship-specific investments, and that ownership should be offered to the party that plays a vital role in raising a surplus. The analysis also showed that foreign direct investment (FDI) plays a vital role in China's rapid growth, while the sustainability of its economic growth may depend heavily on FIE's sub-economic performance.