The Study Of The Impact Of Outward Foreign Direct Investment On China's Industrial Development

In recent years,in order to cope with the complex and ever-changing international and domestic situations,China has issued a series of major policy documents to facilitate the implementation of the “going global” strategy.The strategy is meant to play a key role in using foreign direct investment in the promotion of domestic industrial transformation and upgrading.However,with the stimulation of a series of favorable policies,some regions in China have failed to pay attention to their industrial development conditions,and blindly encourage companies to invest abroad in order to achieve industrial catch-up,resulting in a large number of Chinese companies not paying attention to investment returns,which to some extent impeded China's industrial transformation and upgrading,and even lead some regions to the problem of industrial hollowness.Based on this,this paper examines the impact of outbound foreign direct investment on China's industrial development from two aspects: industrial upgrading effect and industrial hollowing effect.On the one hand,this research has filled the gap of academic research on how outbound foreign direct investment affects industries in the home country.On the other hand,it provides theoretical and practical guidance for local governments and central government to formulate and adjust investment promotion policies,as well as for enterprises to formulate strategies that considering industry characteristics and their own competitiveness when investing overseas.First,this paper studies the industrial upgrading effect of outbound foreign direct investment at the home country,which is conducted using data at the provincial level of the country.This study examines the efficiency of foreign direct investment in China's industries based on the provincial level panel data in China from 2004 to 2015.At the same time,the study analyzes the moderating factor of human capital as a measure of regional absorption capacity on the effect of outbound FDI on industrial upgrading,the result shows that that:(1)There is a positive relationship between outbound FDI and China's industrial production efficiency.The scale of outbound FDI expansion will promote the industry production efficiency;in other words,foreign direct investment is conducive to promoting China's industrial upgrading and optimization.(2)The improvement of China's technological level will weaken the industrial upgrading effect of foreign direct investment in the home country.Since China is currently in the ranks of technology advanced countries,with the improvement of the country's technological level,the space for technology advancement through the adverse spillover effect of outbound FDI will be very limited.Therefore,the improvement of China's technological level will weaken the adverse spillover effect of outbound outbound FDI.(3)China's current human capital stock has no effect on the absorption of adverse spillover effects brought by outbound foreign direct investment.Studies have confirmed the existence of the threshold of human capital in China.The results of this study show that the cross-term coefficient of China's human capital and foreign direct investment is not significant,indicating that China's human capital has not yet reached the “threshold effect” of increasing the adverse spillover of outbound FDI.Second,the industrial upgrading effect of foreign direct investment in the home country: based on research at the enterprise level.This paper uses the database from the “Annual survey of China Industrial firms”,and the “List of Overseas Investment Enterprises(Organization)” published by the Ministry of Commerce,to examine the impact of Chinese enterprises' foreign direct investment on the production efficiency of their home countries.At the same time,this article further analyzes the impact of foreign direct investment on heterogeneous firms from the perspective of ownership heterogeneity(the closeness of corporate-government relations)and factor-intensity heterogeneity.The study finds that:(1)Outbound foreign direct investment of Chinese enterprises as a whole promoted the productivity improvement of home-country firms.(2)There is a significant difference in the impact of foreign direct investment by different ownership enterprises on the productivity of domestic enterprises.Specifically,the outbound direct foreign investment by of state-owned enterprises has no obvious effect in promoting the industrial productivity of domestic enterprises;outbound foreign direct investment conducted by collective enterprises has a some effect in promoting the productivity of the home country enterprises,but its significance is relatively low;the overseas investment behavior of private enterprises has obviously led to an increase in the productivity of domestic enterprises.In general,as the degree of close ties with the government gradually increases,the outward foreign direct investment behavior of Chinese companies is more effective in promoting the productivity of home-country companies.(3)From the point of view of the factor concentration of the industry to which the enterprise belongs,there are certain differences in the impact of foreign direct investment behavior of enterprises in different factor-intensive industries on the productivity of domestic enterprises.For resource-intensive industries and enterprises,their direct foreign investment activities do not have a significant role in promoting the industrial productivity of domestic enterprises.For labor-intensive,capital-intensive,capital-and technology-intensive enterprises,outbound foreign direct investment promotes the productivity of domestic companies.Third,this paper also considers the issue of the industrial hollowing effect of China's outbound direct foreign investment.Industrial hollowing index is constructed through the principal component analysis method,and then uses the panel data of 29 provinces in China to empirically test the possible industrial hollowing effect.At the same time,this paper also analyzes and summarizes governance experience of industrial hollowing in the United States and Japan.The study finds that:(1)There is no significant relationship between China's foreign direct investment and the hollowing index.That is to say,the current foreign direct investment behavior in China will not lead to hollowing out of the industry as a whole.(2)From the perspective of different regions,the estimated value of the coefficient of outbound FDI in the east is negative and significant,indicating that the development of outbound outbound FDI in the eastern part of China will lead to industrial hollowing,while the estimate of the coefficient of outbound FDI in the midwestern provinces indicates outbound foreign direct investment will not temporarily lead to hollowing out industries in the western region.(3)In the post-industrialization stage,the “softening” of the industrial structure is a trend.In response to this trend,we must actively respond to it,and reduce or even avoid the negative impact of possible hollowing out effect.Finally,this article sums up the research conclusions and proposes corresponding policy implications:(1)For China,we should continue to encourage and promote the orderly and high-quality enterprises to go out,so as to encourage the industrial upgrading effect of outbound foreign direct investment.(2)In order to improve China's absorptive capacity for adverse spillover effects of foreign direct investment,governments at all levels must pay attention to increasing investment in education and training in order to raise the level of human capital in the region.This ensures that there is a sufficient level of human capital to absorb the adverse spillover effects of outbound FDI.(3)In order to reduce the weakening effect of technological level on the industrial upgrading effect of foreign direct investment,we should strengthen the ability of regional indigenous innovation so that it can be transformed from a relatively backward technology area to a relatively technological advanced area.(4)Encourage private enterprises to go out and at the same time accelerate the reform of state-owned enterprises.(5)Encourage firms in labor-intensive,capital-intensive,and technology-intensive industries to invest abroad,and rationalize the direct investment of resource-intensive industries and enterprises.(6)Pay attention to the problems of the hollowing out of the industry in some regions.The eastern region should reasonably control the amount of outbound direct foreign investment and regulate the industrial distribution of foreign direct investment.The central and western regions should continue to encourage and promote the orderly and high-quality enterprises to go out.(7)We should actively cope with the threats of Industrial Hollowing-out,strengthening technological innovation,developing emerging industries in order to offset industry gap brought by the outward transfer of traditional industries.It is also necessary to release the control of foreign entry,optimize and improve domestic industrial environment,attract the entry of foreign capital further,and achieve the coordinated development of foreign investments and outward investments.