A fire sale without fire: An explanation of labor-intensive FDI in China

The massive inflow of FDI in China's labor intensive industries is inconsistent with the conventional FDI theories. * We offer a "fire sale without fireâ[euro] hypothesis to explain the puzzle. * Facing severe financial constraint, Chinese private firms give up their equity to form joint ventures with foreign firms in order to obtain financing. * Using firm-level data, we find that financial constraint is the main channel of labor intensive FDI in China. China's labor-intensive industries are characterized by low technology and high competition. The massive inflow of FDI in China's labor inten... Mehr ...