Effects Of Heterogeneity On The Behavior And Performance Of Chinese Outward FDI

With the development of the productivity and the division of labor, outward foreign direct investment(OFDI) has become the key to enhancing the comprehensive competitiveness and an important mean of global control. China’s OFDI has always maintained a rapid growth. OFDI flows in 2000 were only $ 128 million. China’s non-financial overseas direct investment flows in 2014 have exceeded one hundred billion US dollars. Increasing number of Chines e enterprises go abroad. Firms, as OFDI investors, play a key role in reshaping the investment pattern. However, the current research on China’s outward foreign direct investment is based on macroeconomic analysis(national) level or meso(industry) level, focusing on how the “macro/meso heterogeneity” endogenously influences corporate behavior, and lacking micro-in-depth research. In fact, the prevalence of corporate heterogeneity has a significant impact on firm’s OFDI behavior and performance. Considerin g this reality and theoretical background, and based on the “new” new trade theory and the “new” new economic geography framework, this paper focuses on how the “micro-heterogeneity” affects the OFDI behavior and performance.This paper reviews the literature of enterprise foreign direct investment to combine theory origin and provide analytical framework. Next, it describes the scale change and the location distribution of Chinese OFDI, and statistically describes the differences between OFDI enterprises and domestic enterprises, as well as the differences within OFDI enterprise, in order to provide realistic foundation for studing the relations between heterogeneity of firms and Chinese outward foreign direct investment.On this basis, the paper analyzes the impacts of productivity, technology and sale heterogeneity on enterprises’ OFDI behavior(including investment strategy and location choice) and performance. Firstly, it reveals the intrinsic contact between firm heterogeneity and OFDI strategies. This paper extends the HMY model to let firm heterogeneity includes differences in total factor productivity and price ratios. Mathematical derivation shows that MNCs do not need to have the highest productivity. If they have a strong ability to control the mar ket, they are able to engage in foreign direct investment. The empirical results are consensus with theoretical analysis. Using data of China’s listed companies from 2000 to 2011, KS tests and logit regression show that Chinese multinationals did not have higher productivity, but the sales of multinational were significantly higher than those of non-multinational corporations.Secondly, the paper analyzes how firms choose the location of OFDI. Adding the factors of economies scale of host countries, distan ce and intermediate goods transportation in Melitz, Helpman and Chen ’s model, the theoretical model shows that the smaller the size of market of host country, and the farther geographical distance, the higher productivity barriers for enterprises to entry to the host country. Further, this paper explores the relationship between heterogeneity, institutional environment of host countries and location choice of OFDI. Heterogeneity will affect MNCs ’ preferences for the institutional environment of the host cou ntry. The results of logit and probit regressions show that enterprises with low productivity/sales tend to invest in host countries with closer, larger market. While enterprises with high productivity/sales are more likely to invest in countries with smal ler markets, and they have more overseas subsidiaries and a broader spatial distribution. The companies with higher level of productivity and technology tend to invest in countries with transparent government, and more effective policy implementation.Finally, this paper measures how heterogeneity affects the learning effect of Chinese enterprises’ OFDI. Compared with domestic companies, OFDI companies face more stringent quality requirements, and more intense competition in the host market. Cross-border direct investment is more conducive to the promotion of enterprise performance improvement. Enterprise productivity and technical heterogeneity will affect the learning effect through vertical and horizontal overflow from host countries. The empirical results support the theoretical analysis. Based on neighbor and kernel propensity score matching method, the results show that after foreign investment, companies did receive a greater degree of technological upgrading. Chinese firms which invest in developed countries gain more productivity and performance improvement than those only invest in developing countries. Two-stage and three-stage least squares simultaneous equations estimates show that heterogeneity significantly affects Chinese enterprise performance after outward foreign direct investment. Firms with higher productivity or technology have stronger ability to learn from OFDI, and then gain more performance improvement.Based on the above theoretical and empirical analyses, this paper puts forward policy recommendations. Chinese enterprises ’ outward foreign direct investment not only affects their sustainable development, but also relates to the enhancement of China’s macroeconomic development and international competitiveness. Enterprises should carefully select foreign direct investment strategy and host countries in accordance with their capabilities. They should improve productivity, and accelerate technological innovation to enhance OFDI performance. Government should deepen the “going out” strategy, and provide more comprehensive system protection for Chinese enterprises’ overseas investment.