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Does Matching with Foreign-Invested Enterprises Improve the Productivity of Chinese Enterprises?

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  • Yu Zhang
  • Xiang Dai
  • Yuchen Shao

Abstract

Rapid expansion of China’s exports and inward foreign direct investment (FDI) are characteristic of China’s outward-oriented economy. Based on a unique micro-level survey on the co-development between domestic enterprises and foreign-invested enterprises in Kunshan County of Jiangsu Province, this paper finds that domestic enterprises can improve their productivity by matching (in terms of supply, processing, or original equipment manufacturer [OEM] relationship) with foreign-invested enterprises. A self-selection mechanism of matching is at work for domestic enterprises involved in exports: when foreign-invested enterprises operate in China, domestic enterprises compete to match with them, which eventually helps them improve. Empirical analysis supports the emergence of this mechanism, together with a learning-by-exporting effect and a peer effect. In addition, with respect to the peer effect, the improvement in productivity at domestic enterprises whose main product is intermediate inputs depends more on skilled or high-quality labor, while that of domestic enterprises whose main products are capital and consumable products depend more on management staff.

Suggested Citation

  • Yu Zhang & Xiang Dai & Yuchen Shao, 2019. "Does Matching with Foreign-Invested Enterprises Improve the Productivity of Chinese Enterprises?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(15), pages 3404-3416, December.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:15:p:3404-3416
    DOI: 10.1080/1540496X.2019.1603541
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    Cited by:

    1. Prajukta Tripathy & Pragyanrani Behera & Bikash Ranjan Mishra, 2023. "Study of linkages between productivity, export, and outward foreign direct investment: An empirical perspective of Indian manufacturing industries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1527-1548, April.

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