Learning by outward FDI: Evidence from Chinese manufacturing enterprises

Abstract

Using firm-level data of Chinese manufacturing enterprises between 1998 and 2007, we investigate the existence and channels of ?learning by outward FDI?. Difference-in-differences estimation reveals that productivity of Chinese parent firms is significantly improved by their outward foreign direct investment and the learning effects form a ?V? shape in the following years. There is no significant difference in learning effects between state-owned enterprises and non-state-owned enterprises; neither do we find any evidence that investing in countries with advanced technology gives more learning effects. In addition, we find that learning effects mainly come from technology transfer, technology spillovers and an enlarged production scale.

Outward FDI and productivity promotion of exporting firms: firm-level evidence from China

“…The number of matched firms is larger than some of the existing studies, (e.g. Yang et al , 2017), so the comprehensive link approach would lower the bias as much as possible. Table 1 also shows that during our sample period, China has increased OFDI activity significantly, which is suitable for the purpose of this study.…”

“…Also, these findings confirm that the self-selection problem exists, so the simple least squares estimation is invalid. We employ the PSM technique combined with DID method to address the potential endogeneity issue (Girma et al , 2004; Yang et al , 2017).…”

“…These assets are often scarce and valuable for emerging market economies, which include firm reputation, R&D capability, advanced technology, human capital and so on. The “reverse spillover” effects brought by OFDI could improve the parent firm's productivity (Chen et al , 2012; Yang et al , 2017; Chen, 2018). Empirical evidence from China has showed that OFDI exerts a positive impact on firm-level productivity growth (e.g.…”

“…The expansion of a firm's size can improve the R&D efficiency (Zhu and Xu, 2006) and attract human capital (Yang et al, 2017). These innovative activities do not only improve the production efficiency of enterprises, thus directly improving productivity, but also indirectly affect the learning effect of OFDI by enhancing the absorptive capacity through their R&D activities.…”