A model of China's export strengthening outward FDI
Recent surges of China's outward FDI feature four stylized facts: China's OFDI is predominately conducted by state owned or state controlled enterprises (SOEs); a large proportion of such OFDI takes the form of cross-border M&A; most of the target firms are failing firms, which lead to poor post-merger performance; despite the poor performance, they often receive political resistance from the destination developed countries. In this paper, China's OFDI is characterized in a North–South two-country oligopoly FDI model with a public firm in the South aiming to maximize social welfare instead of only its own profit. It is shown that compared to the fully privatized industry, the public firm is more inclined to conduct cross-border M&A but less efficiency oriented, and such M&A is more harmful to the destination country as a whole. We also show that the public firm is socially desirable for the source country when there is foreign competition. The intuition is that the public firm, although less efficient, minimizes the horizontal externalities and acts as a proxy of the regulator and protects home private firms from foreign competition in the export market. Therefore, such OFDI strengthens private firms' exports to the destination country.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dougherty, Sean & Herd, Richard & He, Ping, 2007. "Has a private sector emerged in China's industry? Evidence from a quarter of a million Chinese firms," China Economic Review, Elsevier, vol. 18(3), pages 309-334.
- Neary, J. Peter, 2009.
"Trade costs and foreign direct investment,"
International Review of Economics & Finance,
Elsevier, vol. 18(2), pages 207-218, March.
- Bruno Van Pottelsberghe & Frank Lichtenberg, 2001.
"Does foreign direct investment transfer technology across borders?,"
ULB Institutional Repository
2013/6221, ULB -- Universite Libre de Bruxelles.
- Bruno Van Pottelsberghe De La Potterie & Frank Lichtenberg, 2001. "Does Foreign Direct Investment Transfer Technology Across Borders?," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 490-497, August.
- Lott, John Jr., 1990. "Predation by public enterprises," Journal of Public Economics, Elsevier, vol. 43(2), pages 237-251, November.
- CREMER,Â Helmuth & MARCHAND,Â Maurice & THISSE, Jacques-FranÃ§ois, .
"Mixed oligopoly with differentiated products,"
CORE Discussion Papers RP
930, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- J Bradford Jensen & Andrew B Bernard, 2001.
"Why Some Firms Export,"
01-05, Center for Economic Studies, U.S. Census Bureau.
- Neven, Damien & Siotis, Georges, 1993.
"Foreign Direct Investment in the European Community: Some Policy Issues,"
Oxford Review of Economic Policy,
Oxford University Press, vol. 9(2), pages 72-93, Summer.
- Damien D. Neven & Georges Siotis, 1993. "Foreign direct investment in the european community: Some policy issues," ULB Institutional Repository 2013/184831, ULB -- Universite Libre de Bruxelles.
- Zhao, Wei & Liu, Ling & Zhao, Ting, 2010. "The contribution of outward direct investment to productivity changes within China, 1991-2007," Journal of International Management, Elsevier, vol. 16(2), pages 121-130, June.
- Kenneth Fjell & Debashis Pal, 1996. "A Mixed Oligopoly in the Presence of Foreign Private Firms," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 737-43, August.
- de Fraja, Giovanni & Delbono, Flavio, 1990. " Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
- Bhaumik, Sumon Kumar & Co, Catherine Yap, 2011. "China's economic cooperation related investment: An investigation of its direction and some implications for outward investment," China Economic Review, Elsevier, vol. 22(1), pages 75-87, March.
- Toshihiro Matsumura & Osamu Kanda, 2005. "Mixed Oligopoly at Free Entry Markets," Journal of Economics, Springer, vol. 84(1), pages 27-48, 02.
- David Dollar & Shang-Jin Wei, 2007.
"Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China,"
NBER Working Papers
13103, National Bureau of Economic Research, Inc.
- David Dollar & Shang-Jin Wei, 2007. "Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China," IMF Working Papers 07/9, International Monetary Fund.
- Kenji Fujiwara, 2007. "Partial Privatization in a Differentiated Mixed Oligopoly," Journal of Economics, Springer, vol. 92(1), pages 51-65, September.
- Deng, Ping, 2009. "Why do Chinese firms tend to acquire strategic assets in international expansion?," Journal of World Business, Elsevier, vol. 44(1), pages 74-84, January.
- S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
- Deng, Ping, 2004. "Outward investment by Chinese MNCs: Motivations and implications," Business Horizons, Elsevier, vol. 47(3), pages 8-16.
- Leonard K. Cheng & Zihui Ma, 2010. "China's Outward Foreign Direct Investment," NBER Chapters, in: China's Growing Role in World Trade, pages 545-578 National Bureau of Economic Research, Inc.
- Robert Bichsel, 2006. "State-Owned Banks as Competition Enhancers, or the Grand Illusion," Journal of Financial Services Research, Springer, vol. 30(2), pages 117-150, October.
- Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September.
- Peter J Buckley & L Jeremy Clegg & Adam R Cross & Xin Liu & Hinrich Voss & Ping Zheng, 2007. "The determinants of Chinese outward foreign direct investment," Journal of International Business Studies, Palgrave Macmillan, vol. 38(4), pages 499-518, July.
- Yin-Wong Cheung & XingWang Qian, 2009.
"The Empirics of China's Outward Direct Investment,"
172009, Hong Kong Institute for Monetary Research.
- Yin-Wong Cheung & Xingwang Qian, 2009. "Empirics Of China'S Outward Direct Investment," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 312-341, 08.
- David Sappington & J. Sidak, 2003. "Incentives for Anticompetitive Behavior by Public Enterprises," Review of Industrial Organization, Springer, vol. 22(3), pages 183-206, May.
- de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-11, April.
- Sang-Ho Lee & Hae-Shin Hwang, 2003. "Partial Ownership For The Public Firm And Competition," The Japanese Economic Review, Japanese Economic Association, vol. 54(3), pages 324-335.
When requesting a correction, please mention this item's handle: RePEc:eee:chieco:v:27:y:2013:i:c:p:208-226. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.