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Benefits of foreign ownership: evidence from foreign direct investment in china

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  • Jian Wang
  • Xiao Wang

Abstract

To examine the effect of foreign direct investment, this paper compares the post-acquisition performance changes of foreign- and domestic-acquired firms in China. Unlike previous studies, we investigate the purified effect of foreign ownership by using domestic-acquired firms as the control group. After controlling for the acquisition effect that also exists in domestic acquisitions, we find no evidence in the data that foreign ownership can bring productivity gains to target firms. In contrast, a strong and robust finding is that foreign ownership significantly improves target firms' financial conditions and exports relative to domestic-acquired firms. Foreign acquisition is also found to improve output, employment and wage for target firms. These findings highlight the financial channel through which FDI benefits income and economic growth of host countries.

Suggested Citation

  • Jian Wang & Xiao Wang, 2014. "Benefits of foreign ownership: evidence from foreign direct investment in china," Globalization Institute Working Papers 191, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:191
    DOI: 10.24149/gwp191
    Note: Published as: Wang, Jian and Xiao Wang (2015), "Benefits of Foreign Ownership: Evidence from Foreign Direct Investment in China," Journal of International Economics 97 (2): 325-338.
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    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F60 - International Economics - - Economic Impacts of Globalization - - - General

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