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Has outward foreign direct investment alleviated industrial overcapacity in China? An empirical test of the upstream and downstream industrial links

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  • Wang, Delu
  • Wang, Yadong
  • Jiang, Wuding
  • Shi, Xunpeng

Abstract

This article investigates whether and how outward foreign direct investment (OFDI) affects the industrial overcapacity in China. Using the panel data of eight overcapacity industries between 2005 and 2016, the study reveals the effectiveness of OFDI in alleviating China's industrial overcapacity. In particular, it examines the lagged and threshold effects of OFDI on industrial overcapacity. Empirical results show that: First, OFDI in overcapacity industries and their downstream industries exacerbates China's industrial overcapacity problem. Second, the impacts of OFDI on upstream overcapacity industries and their downstream industries have a lagged effect of four and two years, respectively. Third, the threshold value for the impact of OFDI on industrial overcapacity is $16.17109 billion. These findings provide valuable investment references for China and other developing countries seeking to alleviate industrial overcapacity through international capacity cooperation.

Suggested Citation

  • Wang, Delu & Wang, Yadong & Jiang, Wuding & Shi, Xunpeng, 2023. "Has outward foreign direct investment alleviated industrial overcapacity in China? An empirical test of the upstream and downstream industrial links," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 250-263.
    • Handle: RePEc:eee:streco:v:67:y:2023:i:c:p:250-263
    DOI: 10.1016/j.strueco.2023.08.005
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    More about this item

    Keywords

    OFDI; Overcapacity; Industrial links; Dynamic panel; Threshold regression;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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