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The Dragon Is Flying West: Micro-level Evidence of Chinese Outward Direct Investment

Author

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  • Wenjie Chen

    () (Assistant Professor, George Washington University, School of Business and Elliott School of International Affairs)

  • Heiwai Tang

    () (Assistant Professor, Johns Hopkins University, School of Advanced International Studies and CESIfo)

Abstract

Outward direct investment (ODI) from the People's Republic of China (PRC) is surging. A common perception is that it was driven by the country's resource-seeking and technology-seeking motives. Using a new, unique, and comprehensive dataset that covers close to 10,000 Chinese ODI deals from 1998 to 2009, we find that in contrast to the common perception, over half of the ODI deals are in service sectors, with many of them appearing to be export-related. In addition to documenting the pattern and trend of the PRC's ODI, we empirically examine both the determinants and effects of ODI at the firm level. We find that ex ante larger, more productive, and more export-intensive firms are more likely to start investing abroad. Using matching estimation techniques, we find that ODI is associated with better firm performance, including higher total factor productivity, employment, and export intensity, and greater product innovation. To assess the relative contributions of technology transfer, export promotion, and resource seeking to the positive effects of ODI, we use ODI data merged with customs transaction-level trade data. We find that firms’ ODI participation is associated with significantly better trade performance, measured by export and import volumes, export and import unit values, and number of export destinations. Contrary to perceived technology-seeking and resource-seeking motives, we find no evidence that ODI firms import more capital or intermediate inputs compared to non-ODI firms. © 2013 Asian Development Bank and Asian Development Bank Institute.

Suggested Citation

  • Wenjie Chen & Heiwai Tang, 2014. "The Dragon Is Flying West: Micro-level Evidence of Chinese Outward Direct Investment," Asian Development Review, MIT Press, vol. 31(2), pages 109-140, September.
  • Handle: RePEc:tpr:adbadr:v:31:y:2014:i:2:p:109-140
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    Cited by:

    1. repec:eee:iburev:v:26:y:2017:i:5:p:839-854 is not listed on IDEAS
    2. Cozza, Claudio & Rabellotti, Roberta & Sanfilippo, Marco, 2014. "The impact of outward FDI on the performance of Chinese multinationals," BOFIT Discussion Papers 24/2014, Bank of Finland, Institute for Economies in Transition.
    3. repec:eee:chieco:v:44:y:2017:i:c:p:1-15 is not listed on IDEAS
    4. repec:spr:chfecr:v:4:y:2016:i:1:d:10.1186_s40589-016-0037-8 is not listed on IDEAS
    5. Li, Jian & Strange, Roger & Ning, Lutao & Sutherland, Dylan, 2016. "Outward foreign direct investment and domestic innovation performance: Evidence from China," International Business Review, Elsevier, vol. 25(5), pages 1010-1019.
    6. Cheng Chen & Wei Tian & Miaojie Yu, "undated". "Outward FDI and Domestic Input Distortions: Evidence from Chinese Firms," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-278, Boston University - Department of Economics.
    7. Valeria, Gattai & Rajssa, Mechelli & Piergiovanna, Natale, 2016. "FDI and Heterogeneous Firms: Evidence from BRIC Countries," Working Papers 322, University of Milano-Bicocca, Department of Economics, revised 18 Jan 2016.
    8. Cozza, C. & Rabellotti, R. & Sanfilippo, M., 2015. "The impact of outward FDI on the performance of Chinese firms," China Economic Review, Elsevier, vol. 36(C), pages 42-57.

    More about this item

    Keywords

    Outward direct investment; ODI; export; technology;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • L00 - Industrial Organization - - General - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • P00 - Economic Systems - - General - - - General

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