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Origin of Foreign Direct Investment and Firm Performance: Evidence from Foreign Acquisitions of Chinese Domestic Firms

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  • Fariha Kamal

Abstract

type="main" xml:id="twec12147-abs-0001"> Using a newly created panel of domestic Chinese firms who receive foreign direct investment (FDI), this paper finds that Organisation of Economic Cooperation and Development (OECD)-acquired firms outperform those acquired by investors from Hong Kong, Macao and Taiwan (HMT). To control for possible endogeneity of the FDI decision, I employ propensity score matching combined with a difference-in-differences approach. The results indicate that relative to HMT-acquired firms, OECD-acquired firms experience significantly higher productivity in the initial year of acquisition and this productivity differential persists in subsequent years, reaching 27.8 per cent by the third year. Further, OECD-acquired firms exhibit higher profits, average wages and capital per worker compared to HMT-acquired firms. These results suggest that the origin of the foreign investor differentially affects target firm performance.

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  • Fariha Kamal, 2015. "Origin of Foreign Direct Investment and Firm Performance: Evidence from Foreign Acquisitions of Chinese Domestic Firms," The World Economy, Wiley Blackwell, vol. 38(2), pages 286-314, February.
    • Handle: RePEc:bla:worlde:v:38:y:2015:i:2:p:286-314
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    File URL: http://hdl.handle.net/10.1111/twec.2015.38.issue-2
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    Cited by:

    1. Wang, Jian & Wang, Xiao, 2015. "Benefits of foreign ownership: Evidence from foreign direct investment in China," Journal of International Economics, Elsevier, vol. 97(2), pages 325-338.
    2. Puman Ouyang & Shunli Yao, 2017. "Developing inland China: The role of coastal foreign direct investment and exports," The World Economy, Wiley Blackwell, vol. 40(11), pages 2403-2423, November.
    3. Wei Wei & Jianmin Tang, 2019. "Ownership transformation, firm performance and manufacturing growth in China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 27(2), pages 475-496, February.
    4. László Tőkés, 2019. "The Effect of Foreign Direct Investment on Firm Labor Productivity: Does the Country of Origin of the FDI Matter?," Society and Economy, Akadémiai Kiadó, Hungary, vol. 41(2), pages 227-243, June.
    5. Yoonseok Lee & Mary E. Lovely & Hoang Pham, 2023. "Dynamic and non‐neutral productivity effects of foreign ownership: A nonparametric approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(1), pages 24-48, January.
    6. Gaygysyz Ashyrov & Nicolas Gavoille & Kjetil Haukås & Rasmus Bøgh Holmen & Jaan Masso, 2024. "Foreign Ownership And Productivity: A Comparative Study Of Estonia, Latvia And Norway," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 148, Faculty of Economics and Business Administration, University of Tartu (Estonia).

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