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Outward FDI and Domestic Input Distortions: Evidence from Chinese Firms

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  • Cheng Chen
  • Wei Tian
  • Miaojie Yu

Abstract

We examine how domestic distortions affect firms’ production strategies abroad by documenting two puzzling findings using Chinese firm-level data of manufacturing firms. First, private multinational corporations (MNCs) are less productive than state-owned MNCs, but they are more productive than state-owned enterprises overall. Second, there are disproportionately fewer state-owned MNCs than private MNCs. We build a model to rationalise these findings by showing that discrimination against private firms domestically incentivises them to produce abroad. The model shows that selection reversal is more pronounced in industries with more severe discrimination against private firms, which receives empirical support.

Suggested Citation

  • Cheng Chen & Wei Tian & Miaojie Yu, 2019. "Outward FDI and Domestic Input Distortions: Evidence from Chinese Firms," The Economic Journal, Royal Economic Society, vol. 129(624), pages 3025-3057.
    • Handle: RePEc:oup:econjl:v:129:y:2019:i:624:p:3025-3057.
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    File URL: http://hdl.handle.net/10.1093/ej/uez034
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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