Chinese Firm Productivity And The Entry Modes Choice Of Direct Investment Abroad

Since Chinese government implements "going-out" strategy in order to support firms of advantages to conduct outward foreign direct investment (OFDI), Chinese OFDI develops fast. Especially in recent years, the role of OFDI is becoming increasingly important, and outward-FDI and inward-FDI are firstly near balance in 2014. OFDI of Chinese firms may have opportunities for rapid development with the strategic concept of "One Belt and One Road (OBOR)". But undeniably, now Chinese OFDI faces a great challenge. On the one hand, global FDI total flow except China decreases in 2014, which means the present international situation is complicated, changes constantly and the world economic recovery is still difficult. On the other hand, as the main bodies, Chinese firms conduct OFDI only for decades since the policy of "going-out" strategy is implemented and firms have not enough experience to conduct risk in international markets, even ex-ante entry modes choice determines the results of entire investment So how do firms choose optimal entry mode based on their characteristics? Meanwhile, China's rapid economic growth in the past depends on demographic dividend, but this dividend is near to being cashed out so that China may have to face the risk of getting trapped in the "middle-income country trap". A key solution is to promote industrial upgrading which means boosting of firm productivity in the angle of firm. So it is fully realistic to study how to boost firm productivity in order to promote industrial upgrading in the opportunity of firm going out.Under the background above, this thesis develops a new dataset of Chinese manufacture firms' OFDI to investigate three main aspects using both theoretical and empirical methods:(1) How does firm productivity determine its optimal OFDI entry mode? (2) How does firm technology and management capabilities from decomposition of TFP determine its optimal OFDI entry mode? (3) What's the difference in "learning effect" of firm productivity under different entry modes?We can get many beneficial conclusions through research about above three questions, these conclusions can be summarized as follows:firstly, firms with higher TFP have larger probabilities to choose M&A mode when involving in OFDI, and heterogeneous transnational mobility of parent firms'upstream knowledge assets affect TFP's selection effect to some extent. Secondly, through further TFP'decomposition, firms with stronger management ability have larger probabilities to choose M&A, but R&D's selection effect is insignificant. Lastly, in different modes, the "learning effect" of firm productivity significantly exists, but magnitude, occurrence time and occurrence mechanisms are different. So our study can offer some important firm-level evidences for Chinese firms' OFDI entry modes choice.The thesis consists of eight chapters. Entire sequence of research structure is lengthy questions, analysis, ideas for solving problems, which are organized as follows:In the first chapter, we propose the research questions according to the realistic background and existing related research. The realistic background can be summarized as three aspects including the opportunity for Chinese firms'OFDI in the strategic of OBOR, complicated international situation and inexperience for firms'OFDI, and importance of firm productivity boosting for industrial upgrading. The shortcomings of existing papers are reflected in the related research about both new-new trade theory and multinational company FDI theory.Chapter two characterizes the features of entire Chinese OFDI and entry modes of firms'OFDI. It gets us a understanding of aesthetic intuition for our research topics and aims to help us understand three research questions we focus afterward more rationally.Chapter three reviews the related literature broadly, in order to summarize the shortcomings of existing papers and then pinpoint this thesis's research questions and research value. The literature review includes three aspects. Firstly, we review the selection effect of TFP on firms'export and OFDI which are main modes of firm internationalization in the framework of new-new trade theory, we also give a brief comment on integration which is generally concerned between new-new trade theory and multinational company FDI theory. Secondly, we review the main research perspectives and factors of firms'OFDI entry mode choice in the framework of multinational company FDI theory. Lastly, we move to studies of the "learning effect" of firm productivity from both inward-FDI effect on host-country firms and outward-FDI effect on home-country firms. These related literature review are main theoretical basis for our study.The fourth chapter introduces the process of collecting data, and the definition and calculation of the main variables. Through collecting the data, we construct a novelty dataset. To show our contributions, we summarize the data which are used in exiting literatures, pointing out their problems. What's more, we introduce two main variables, firm's OFDI entry mode and firm's TFP.In fifth chapter, we discuss that how firm's TFP affect the firm's OFDI entry modes choice. We put forward the theory assumption through concluding the literatures, then do the empirical test. We find that firms with higher TFP have larger probabilities to choose M&A mode when involving in OFDI, and heterogeneous transnational mobility of parent firms'upstream knowledge assets affect TFP's selection effect to some extent.The six chapter studies that how firm's heterogeneous capabilities which are separated into firm's technology and management capabilities affect the firm's OFDI entry modes choice. By developing a general equilibrium model, we firstly make the theoretical predictions, then we get the same results through the empirical test. The results show that firms with stronger management ability prefer the M&A and the effect is significant, while the firms with stronger technology ability prefer greenfield, but it's not significant. Meanwhile, we investigate the heterogeneous effects of firms' capabilities across firms, industries and regions.In seventh chapter, we use quasi natural experiment method to explore the firm TFP "learning effect" under the different OFDI entry modes. The results suggest that no matter firms choose greenfield or M&A, OFDI promotes firms' TFP significantly. But magnitude, occurrence time and occurrence mechanisms are different. Hence, we try to explore the reason of the differences from many likely occurrence mechanisms such as technology reverse spillover, scale effect, learning effect of managerial experience and firm profitability analysis. We also discuss the problems of causal identify between TFP selection effect and learning effect.In eighth chapter, we summarize the main findings of this thesis and discuss the policy implications. Possible extensions of this study are also discussed.This thesis improves the current study about the Chinese firms'OFDI mode choice in three ways.Firstly, most of the exiting literatures focus on explaining the decision of firms to serve foreign market either through export or OFDI, but lack further investgating about OFDI entry modes choice. Moreover, although trade and MNC's literature have exploited the influence factors of firm's OFDI entry modes choice, firm's TFP and firm's mobile capabilities such as technology and management which are important factors of firm heterogeneity seldomly are considered. What's more, as the lack of Chinese firm level OFDI data limits the further research, we build a new dataset so that we can exploit the selection mechanisms of firms'OFDI entry mode and firm TFP "learning effect" under the different entry modes. Our work is a supplement to the exiting researches.Secondly, we construct a novelty dataset. We merge the "List of Chinese Institutions Invest Abroad" with the "Annual Survey of Industries" which conducted by China's National Bureau of Statistics, then we collect firms'OFDI information from the firm's official websites, Annual reports, the local government statistical reports, and public news and reports. Comparing with the existing literatures, this dataset is novelty, and we believe it will be benefit to the further research about Chinese firms'OFDI.Thirdly, based on the Nocke and Yeaple(2007)'s paper, we develop a general equilibrium model to explore how a firm's technology and management capabilities affect its optimal entry mode choice. What's more, for the empirical test, three methods including estimation in different periods, Heckman two-stage estimation and quasi natural experiment method are used to solve the endogeneity problems which are caused by mix-up of selection effect and learning effect. Specifically, the quasi natural experiment method is mainly used in firm's export research for controlling the firm's TFP selection effect problem, but is seldomly used in firms'OFDI research. Moreover, to guarantee the results robustness, we use several statistical description methods to doing some tests before regression analysis. Specifically, as a more robust statistic description method, Kolmogorov-Smirnov method is widely used in many fields, but is seldomly used in research about firms'OFDI entry modes choice.