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

Asian Development Review 31:2

32 Pages Posted: 7 Apr 2016  

Wenjie Chen

George Washington University - Department of International Business

Heiwai Tang

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

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Date Written: September 12, 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 resourceseeking and technology-seeking motives. Using a new, unique, and comprehensive dataset that covers close to 10,000 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, employment, and export intensity, and greater 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 volumes, export and import unit values, and number of export destinations. Contrary to perceived technology-seeking and resource-seeking motives, we find no evidence that ODI firms import more capital or intermediate inputs compared to non-ODI firms.

Keywords: foreign direct investment, trade facilitation, resource seeking, People’s Republic of China

JEL Classification: F1, F2

Suggested Citation

Chen, Wenjie and Tang, Heiwai, The Dragon is Flying West: Micro-Level Evidence of Chinese Outward Direct Investment (September 12, 2014). Asian Development Review 31:2. Available at SSRN: https://ssrn.com/abstract=2758990

Wenjie Chen (Contact Author)

George Washington University - Department of International Business ( email )

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

Heiwai Tang

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

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

CESIfo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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