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

Abstract

PurposeThe purpose of this paper is to estimate the impact of China's outward foreign direct investment (OFDI) conducted by exporting firms on their productivity.Design/methodology/approachThis study uses two Chinese firm-level datasets. To reduce the bias when merging the two datasets, this study uses a comprehensive link approach to obtain more observations. The propensity score matching method is employed together with the difference-in-difference and difference-in-difference-in-difference approaches to identify the casual effects.FindingsThe study finds that exporting firms become more productive through learning effect via OFDI, and the positive impact of OFDI on total factor productivity materializes very quickly but subject to diminishing return. The study also finds that state-owned enterprises gain less learning effect via OFDI than private-owned enterprises, and firms with higher export intensity or larger size tend to gain less improvement in productivity via OFDI.Originality/valueThis is one of the first studies to investigate empirically the impact of OFDI conducted by exporting firms on their productivity. In particular, the study analyzes three types of firm heterogeneous factors, namely, ownership, export intensity and size, in affecting exporting firms' learning effect via OFDI.

Outward foreign direct investment and GVC position of manufacturing industry: A perspective on China’s general trade and processing trade structure

“…This increases China's commerce with host nations and lowers the export trade fixed cost ceiling, which helps China's manufactured exports grow in volume [41]. Numerous studies have also demonstrated that OFDI can significantly raise domestic productivity levels [42,43]. It can help manufacturing companies to surpass the threshold of export trade costs and enhance their ability for autonomous innovation.…”