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Factor price distortion, efficiency loss and enterprises' outward foreign direct investment

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  • Kong, Qunxi
  • Chen, Afei
  • Wong, Zoey
  • Peng, Dan

Abstract

The ways in which the factor market distortions induced by China's gradual reform affect enterprises' outward direct investment decision-making represent a topic that needs further study under the new pattern of an open economy. Based on the 2003–2007 China Industrial Enterprises Database, this paper examines the impact of factor price distortions on firms' OFDI behavior from enterprise productivity by using the intermediary effect model. The results show that: Firstly, factor price distortion will bring efficiency loss, but factor price distortion has a positive impact on enterprises' OFDI decision-making, and there is a significant intermediary effect on enterprise productivity. Secondly, there is a partial intermediary effect on enterprise productivity in China's Eastern and Central regions, and for capital price distortions, enterprise productivity in the Eastern areas has a cover-up effect. In Western regions, however, it shows a complete intermediary effect. Thirdly, compared with state-owned enterprises, factor price distortion on OFDI decision-making depends more on the intermediary role of productivity.

Suggested Citation

  • Kong, Qunxi & Chen, Afei & Wong, Zoey & Peng, Dan, 2021. "Factor price distortion, efficiency loss and enterprises' outward foreign direct investment," International Review of Financial Analysis, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:finana:v:78:y:2021:i:c:s1057521921002386
    DOI: 10.1016/j.irfa.2021.101912
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    6. Zhang, Dongyang & Kong, Qunxi, 2022. "Credit policy, uncertainty, and firm R&D investment: A quasi-natural experiment based on the Green Credit Guidelines," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).

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