ABSTRACT
This chapter presents a theoretical framework for an analysis of linkage effects, and then probes the potential linkage effects of direct foreign investment (DFI) in the Chinese industry sector by estimating industrial linkage indices and discusses the industrial distribution of DFI activities. It focuses on backward linkage effects of foreign-invested enterprises (FIEs) on the domestic sector of China. The chapter investigates the potential linkage effects of DFI and their materialization in China's industry sector. The high potential backward linkage effects of FIEs on domestic sectors can also be examined by testing rank correlation coefficients between the backward linkage indices of industries and the distribution percentages of DFI and FIEs' activities. Due to paucity of systematic statistical data on imported inputs used in FIEs at the industry level, it is extremely difficult to precisely measure the imported inputs in FIEs for an industry.
