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Home-country environment and firms’ outward foreign direct investment decision: Evidence from Chinese firms

Author

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  • Kong, Qunxi
  • Guo, Rui
  • Wang, Yang
  • Sui, Xiuping
  • Zhou, Shimin

Abstract

This paper takes a holistic view and examines the environmental effect of the home country on firms’ outward foreign direct investment (OFDI) decisions. We construct an economic growth index to assess the overall economic environment of Chinese regions and find that the home country’s business environment is negatively associated with firms’ decisions to invest abroad, and that such a negative relationship can be intensified for firms with state ownership or without an export network. Moreover, unlike previous literature, we look at both the environmental effect on OFDI decisions and the consequential impact of OFDI on firm performance. We employ propensity score matching and difference-in-differences methods, as well as the Heckman two-step model, for our estimations. Our results show that OFDI does indeed improve Chinese firms’ productivity and sales. This paper, therefore, contributes to the literature by identifying a range of home country business environmental factors that have a combined effect on firms’ OFDI decisions, adding to a more comprehensive understanding of OFDI originating from emerging economies.

Suggested Citation

  • Kong, Qunxi & Guo, Rui & Wang, Yang & Sui, Xiuping & Zhou, Shimin, 2020. "Home-country environment and firms’ outward foreign direct investment decision: Evidence from Chinese firms," Economic Modelling, Elsevier, vol. 85(C), pages 390-399.
    • Handle: RePEc:eee:ecmode:v:85:y:2020:i:c:p:390-399
    DOI: 10.1016/j.econmod.2019.11.014
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    More about this item

    Keywords

    Home-country environment; Economic growth index; Outward FDI; Chinese firms;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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