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

HKIMR Working Paper No.14/2014

Posted: 30 Jun 2014 Last revised: 2 Jul 2014

See all articles by Wenjie Chen

Wenjie Chen

George Washington University - Department of International Business

Heiwai Tang

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); The University of Hong Kong - Faculty of Business and Economics; CESIfo; Kiel Institute for the World Economy

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Date Written: June 30, 2014

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.

Note: Full text is available from the authors upon request

Suggested Citation

Chen, Wenjie and Tang, Heiwai, The Dragon Is Flying West: Micro-Level Evidence of Chinese Outward Direct Investment (June 30, 2014). HKIMR Working Paper No.14/2014 , Available at SSRN: https://ssrn.com/abstract=2460587

Wenjie Chen

George Washington University - Department of International Business ( email )

2201 G Street, NW
Suite 401
Washington, DC 20052
United States

Heiwai Tang (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

The University of Hong Kong - Faculty of Business and Economics ( email )

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Hong Kong
China

CESIfo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Kiel Institute for the World Economy ( email )

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Kiel, Schleswig-Hosltein D-24100
Germany

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