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The Dragon is Flying West: Micro-Level Evidence of Chinese Outward Direct Investment

Author

Listed:
  • Wenjie Chen

    (George Washington University)

  • Heiwai Tang

    (Johns Hopkins University and Hong Kong Institute for Monetary Research)

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 and technology-seeking motives. Using a new, unique, and comprehensive data set that covers close to 10000 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, higher employment, higher export intensity, and more 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 volume, export and import unit values, and number of export destinations. In contrast with the technology- and resource-seeking motives, we find no evidence that ODI firms import more capital or intermediate inputs, compared to non-ODI firms.

Suggested Citation

  • Wenjie Chen & Heiwai Tang, 2014. "The Dragon is Flying West: Micro-Level Evidence of Chinese Outward Direct Investment," Working Papers 142014, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:142014
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    More about this item

    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 - Political Economy and Comparative Economic Systems - - General - - - General

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