Industrial Policies And Chinese Firms' Outward FDI ——Decision Analysis,Productivity Improvement And Welfare Effect

Since 2004,China's outward foreign direct investment(FDI)has achieved rapid development.Domestic firms take the industrial chains as the starting point to allocate resources globally.Outward FDI-relevant industrial policies played a key role in the rapid growth of outward FDI.The system of opening up of outward FDI with Chinese characteristics has been transformed into governance efficiency by a series of industrial policies,showing great advantages.To promote the modernization of national governance system and governance capacity,the most important thing is to improve the effectiveness of industrial policies.However,it should be recognized that the multipolarization trend carries on in depth and international situation is complex and changeable.Under this condition,outward FDI is confronted with uncertainty and risk.It is important to untangle the position of Chinese outward FDI.Optimizing the structure of outward FDI and improving the ability of firms to lay out the market network also have far to go.In this context,this paper comprehensively and systematically examines the impact of industrial policies on Chinese firms' outward FDI,untangling the development of outward FDI-related industrial policies.Firstly,this paper defines the industrial policy system of outward FDI with Chinese characteristics,which is composed of investment facilitation policies,direction guidance policies,and financial and taxation policies.Then,utilizing counting and text analysis method,this paper examines the dynamic changes of outward FDI-related industrial policies.Using Outward FDI List from Ministry of Commerce and Annual Report of Industrial Enterprise Statistics during2004-2013,this paper does theoretical analysis and empirical research on how industrial policies influencing outward FDI from four aspects,including firm's willingness and ability,the coordination of policies formulated by different levels of government,the improvement of firm's capability,and the welfare effect.This paper includes eight chapters.The first chapter is introduction,including research background,research significance,main content and framework,research methods,as well as possible innovations and contributions.Chapter Two is literature review,which clarifies the impact factors of firms' outward FDI,the theoretical framework of government influencing firms' outward FDI,the studies taking Chinese firms' outward FDI as the research subject and the research about the productivity effect brought by outward FDI.The third chapter is the clarification and quantification of Chinese outward FDI-related industrial policies,which reviews the development path and introduces the quantitative approach of industrial policies.This chapter also summarize some stylized facts about industrial policies and Chinese outward FDI.The core chapters of this paper are Chapter Four to Chapter Seven.From the perspective of firm's willingness and ability,the fourth chapter studies the impact of industrial policies on Chinese firms' dynamic decision-making towards outward FDI by dynamic optimal model.It focuses on the moderating effect of firm-level characteristics,and empirically evaluates the effect of industrial policies on outward FDI of Chinese firms in general.It also makes an extended analysis that is to further investigate the effect of different types of industrial policies.The fifth chapter focuses on the coordination of industrial policies,specifically the investment facilitation policies.It studies the interactive relationship between the policies issued by central governments and relevant policies issued by provincial governments,as well as the interaction between the policies at the two levels and firm's or regional characteristics.It may be the first study examining the relationship between policies formulated by different levels of government and firms' outward FDI.This chapter expands international business theories from the perspective of institution,giving corresponding theoretical hypotheses.On this basis,it investigates the impact of different levels of investment facilitation policies through empirical analysis,and addresses endogeneity by TSLS with instrumental variable.From the perspective of firm capability improvement,Chapter Six studies the reverse spillover effect of outward FDI and the impact of industrial policies on the productivity effect of outward FDI.It analyzes the differences of investment types and industry characteristics in influencing the productivity effect of outward FDI,as well as the lag productivity effect.Chapter Seven constructs heterogeneous firm model which considering industrial policy support,and studies the micro mechanism and welfare effect of industrial policies to promote outward FDI.Based on the introduction of industrial policies in Chapter Three,this chapter empirically studies how industrial policies impacting outward FDI cutoff and average productivity at industry-year level,and analyzes the welfare effect of industrial policies through numerical method.Chapter Eight gives conclusions and policy implications,which summarizes corresponding policy enlightenment and the future research direction in this field.Based on the theoretical analysis and empirical research,the conclusions of this paper are as follows:(1)Industrial policies not only significantly improve the probability of Chinese firms to make outward FDI,but also promote multinationals to participate in internationalization again.The higher the productivity,the stronger the promotion effect of industrial policies on outward FDI;and the effect of industrial policies on outward FDI of nonstate-owned firms is stronger than that on the outward FDI of state-owned firms,which further confirming that China's outward FDI-related industrial policies focus on promoting the willingness and ability of firms to make outward FDI.Further analysis shows that financial and taxation policies play a stronger role in promoting outward FDI when compared with other types of industrial policies.(2)The investment facilitation policies issued by central government and provincial government can significantly promote firms' outward FDI,and provincial-level policies can further strengthen the promotion role of central-level policies.When firms are affiliated to higher-level government,the promotion role of the provincial policies will be weakened.Both central and provincial policies exert more significant effect on promoting firm outward FDI in regions with higher degree of marketization.In addition,if classifying investment facilitation policies according to their content and target,different types of investment facilitation policies have divergent effects on firms' outward FDI,the promotion effect of foreign exchange management policies is stronger than that of approval policies and information support policies.The mechanism analysis shows that asset deviation is the possible channel for central policies and provincial policies facilitating outward FDI.(3)Outward FDI has positive impact on firm's productivity,and the increased support of industrial policies will strengthen this effect.Industrial policies will further improve the productivity effect of outward FDI regardless of the R?D resourceintensive level and the credit control level of host countries.Industrial policies will strengthen the gains in productivity from outward FDI for firms in non-strategic industries,but not for firms in strategic industries.In addition,the significant positive impact of outward FDI on firm's productivity will increase first and then decrease,while industrial policy support does not strengthen the long-term causal relationship between outward FDI and productivity.(4)Industrial policy support can reduce cutoff productivity and average productivity of outward FDI,which is robust when considering productivity evaluation method and endogeneity.There are obvious differences in the impacts of different types of industrial policies on outward FDI.Firms are inclined to invest to the destinations with more policies support.The numerical results show that moderate industrial policy support improve welfare under the assumption of neutral budget.From the perspective of industrial policies,this paper provides a comprehensive interpretation for Chinese firms' outward FDI,enriches the research on outward FDIrelated industrial policies,and provides micro basis for evaluating the impact of industrial policies on firms' outward FDI,which has important implications for improving outward FDI-related industrial policies and service system.The implications of this paper are as follows: first,Chinese government assists firms in internationalization by issuing broad industrial policies to reduce the cutoff productivity of outward FDI.Second,more attention should be paid to the different effects of industries policies on outward FDI of firms with diverse capabilities and ownership structures.Third,to promote firms' outward FDI,it is necessary to continue transforming the functions of government,deepening the simplification of administration and decentralization.It is also important to strengthen the coordination of outward FDI-related industrial policies,to define responsibilities further and improve the joint forces of policies.Fourth,government should pay attention to the feedback of long-term effect when formulating and implementing industrial policies,and try to establish a mechanism to improve the reverse spillover effect of outward FDI in the long run.Government should not only give corresponding support to outward FDI in time,but also clarify its own role and position.Finally,government and firm could jointly cultivate and develop the unique competitive advantages of Chinese multinationals,promote firms to actively participate in international competition through outward FDI,arrange domestic and international production properly,and improve the global manufacturing radius of Chinese manufacturing,further realizing the collaborative promotion of a dual circulation development pattern.