Abstract: By expanding New Growth Theory, this paper establishes the theoretical model which makes TFP endogenously determined by ODI and marketization. Using China’s province-level panel data during 2003-2012, we empirically analyze the spillover effect of ODI on TFP under the process of China’s market-oriented transformation. In order to investigate the channels through which ODI influences TFP, we use DEA-Malmquist index to decompose TFP into three elements: technology level change (TC), pure technology efficiency change (PE) and scale efficiency change (SE); and further calculate the marginal effect of ODI on TFP and its elements. The empirical results reveal that: first, ODI and marketization significantly and positively impact TFP; second, ODI promotes TC, reduces SE, and has no significant effect on PE; third, as for the impact on TFP, the relationship between ODI and marketization is complementary. That is, with the deepening of marketization, the promoting effect of ODI on TC and PE exceeds the decreasing effect of ODI on SE, and further contributes the improvement of TFP.

Key words: ODI, marketization, TFP, technology spillover