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Spillover Effects of Foreign Direct Investment on Export Sophistication: Evidence from Chinese Domestic Manufacturing Firms

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  • Haiyun Liu
  • Xuefeng Wang

Abstract

The rapid growth of China’s export sophistication and the driving factors are a matter of discussion in the literature. This study constructs a new measurement for net sophistication by utilizing the world input-output database and excluding the technologies embodied in foreign inputs. We find that although China’s net sophistication has been increasing, it is much lower than that of developed countries. Based on new measurements, we explore the impact of FDI on domestic firms’ net sophistication in China using data from 2000 to 2010. The results suggest that FDI has competition effects on domestic firms. Net sophistication may increase in the short term as domestic firms adjust their production by reducing the use of foreign technology to reduce costs. However, this increase in net sophistication is not sustainable without technological upgrades. Under long-term competition from foreign firms, domestic firms’ net sophistication decreases. Our findings provide clear policy implications for labor-rich developing countries that seek to upgrade exports by attracting FDI.

Suggested Citation

  • Haiyun Liu & Xuefeng Wang, 2022. "Spillover Effects of Foreign Direct Investment on Export Sophistication: Evidence from Chinese Domestic Manufacturing Firms," Journal of Development Studies, Taylor & Francis Journals, vol. 58(11), pages 2393-2408, November.
    • Handle: RePEc:taf:jdevst:v:58:y:2022:i:11:p:2393-2408
    DOI: 10.1080/00220388.2022.2094254
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    Cited by:

    1. Rehman, Faheem Ur & Islam, Md. Monirul & Raza, Syed Ali, 2023. "Does disaggregate energy consumption matter to export sophistication and diversification in OECD countries? A robust panel model analysis," Renewable Energy, Elsevier, vol. 206(C), pages 274-284.
    2. Zhoufu Yan & Shuntian Sui & Fangwei Wu & Li Cao, 2023. "The Impact of Outward Foreign Direct Investment on Product Quality and Export: Evidence from China," Sustainability, MDPI, vol. 15(5), pages 1-13, February.
    3. Idrys Fransmel Okombi & Beaudelaire Francois Tsinguia-Kenfack, 2024. "Foreign direct investment and economic complexity in developing countries: does public expenditure on education matter?," SN Business & Economics, Springer, vol. 4(1), pages 1-38, January.
    4. Radovan Kastratović, 2023. "Exporting decision of agricultural firms: The role of foreign direct investment," Agribusiness, John Wiley & Sons, Ltd., vol. 39(4), pages 960-984, October.
    5. Bingjiang Luan & Hanshuo Yang & Hong Zou & Xi Yu, 2023. "The impact of the digital economy on inter-city carbon transfer in China using the life cycle assessment model," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-14, December.

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