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The impact of OFDI on firms' supply chain diversification: A moderating role based on corporate R&D

Author

Listed:
  • Wang, Wenjia
  • Xu, ke
  • Liu, Lei
  • Wang, Xiaolin

Abstract

How to strengthen global economic linkages and cope with supply chain risks through supply chain diversification strategies has become a critical topic in academic research. However, the existing literature has not yet systematically explored the mechanisms of firms' international production activities, particularly outward foreign direct investment (OFDI), in promoting supply chain diversification. To verify the relationship between OFDI and firms' supply chain diversification, this study draws on a combination of theoretical perspectives, including the Eclectic Theory of International Production, internalization theory, resource dependence theory and economies of scope theory. Using firm-level data on OFDI and intermediate goods imports from Chinese industrial enterprises between 2000 and 2014, the study applies a treatment effect model to examine the impact of OFDI on firms' supply chain diversification and further investigates the moderating role of corporate R&D in this relationship. The findings indicate that the level of supply chain diversification among Chinese firms has been increasing, and OFDI significantly enhances this diversification. OFDI contributes to supply chain diversification by improving R&D quality, depth, and output, as well as expanding the range of destinations for intermediate imports. Additionally, through OFDI, firms gradually establish global supply networks centered on themselves, becoming central actors in the global supply system. Moreover, this study reveals that regional diversification of OFDI has substantially increased China's reliance on supply chains within Belt and Road Initiative partner countries. Strengthening regional cooperation under the ‘Belt and Road Initiative’ is thus an essential pathway for China to achieve higher levels of openness and ensure supply chain security and stability.

Suggested Citation

  • Wang, Wenjia & Xu, ke & Liu, Lei & Wang, Xiaolin, 2025. "The impact of OFDI on firms' supply chain diversification: A moderating role based on corporate R&D," International Review of Economics & Finance, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025003065
    DOI: 10.1016/j.iref.2025.104143
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    References listed on IDEAS

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