Research On The Economic Benefits Of Chinese Enterprises' Overseas Direct Investmen

Since the 2008 international financial crisis,the global trade and investment patterns experienced remarkable changes.During these years,the economic development of developed countries becomes weak,anti-globalization trends,protectionism and unilateralism are spreading.The events such as Brexit and the United States’ implementation of trade protection policies hinder the process of global economic integration.However,in the past decade,the economic integration among emerging economies is accelerated.Although the growth rate of global value chains has slowed,Asian countries have seen the fastest growth in GVC participation.During this period,China has always been committed to promoting global development.The“Belt and Road” initiative,accelerating the process of facilitation of foreign investment,improving the policy and service system for promoting foreign investment,and the proposal of the “Dual Circulation” development pattern all demonstrate China’s determination to continue to expand the pattern of opening up.Outward foreign direct investment(OFDI or ODI),as one of the ways of “going out”,is becoming more and more important in Chinese economic development.Until the year of 2018,27.0 thousand Chinese domestic investors had established 43 thousand foreign direct investment firms in 188 overseas countries and regions,with a cumulative net investment of $1982.27 billion and total overseas firm assets of $6.6trillion.What has the rapid growth of foreign direct investment brought to Chinese economy? Under the situation of increasing uncertainty of global economy in the future,can Chinese firms continue to integrate global resources by OFDI and promote the domestic and international dual circulation? The exploration of the above issues is of great significance in both academic research and policy implication.Some scholars have demonstrated that capital outflow under OFDI and production transfer will have adverse effects on Chinese economy.While others believe that firms can integrate resources in both domestic and foreign markets,which helps reduce production and operation costs and improve domestic production efficiency.Besides,developing countries can gain reverse technology spillovers by approaching sales markets and R&D centers through foreign investment,thereby boosting economic development.Early research in this field mainly analyzes the impact of OFDI on economic growth from the macro level.Considering that the firm is the entity of foreign direct investment and enriched micro data in recent years,increasing number of scholars have explored foreign direct investment from the micro aspect.They focus on the impact of foreign direct investment on firm productivity,innovation,exports,employment and domestic investment.However,there are still a few micro-level studies on the performance of Chinese OFDI firms.Furthermore,there is few studies on how foreign direct investment affects firm performance under the current world economic situation when global value chains are more dispersive,trade protectionism is prevailing in developed countries,the increasing participation of developing countries in economic globalization,and the uncertainty of future trade policies will increase significantly.This study is designed to keep pace with time and answer the above questions by exposing the characteristics of Chinese firms’ foreign direct investment in this new era.Specifically,exploring the rapid development of foreign direct investment and how to make full use of domestic and foreign markets to achieve improvement.This study first combines firm OFDI and firm export,examining how firms’ foreign direct investment in a specific country affects their export performance to that country and focuses on testing information spillover channels and global production channels.Then based on the question whether the complementary(substitution)effects of foreign direct investment on export will expand(reduce)the scale of domestic market,this paper studies the impact of OFDI on the scale and efficiency of domestic investment.Finally,this study uses the occurrence of the U.S.-China trade conflict in2018 as a quasi-natural experiment to explore whether foreign direct investment can reduce the negative impact of trade policy uncertainty on firm short-term and long-term performance by connecting domestic and foreign markets.This paper has the following conclusions:(1)Foreign direct investment can significantly promote firm exports,especially in the same region as the host country of existing investment,namely “trade creation effects”.The empirical results show that the export value of firms with investment in a specific country is 104.93 percentage points higher than that of firms without investment.In addition to export value,foreign direct investment also promotes the amount of firms export to that country,the unit price and the number of varieties of export products.This “trade creation effects” only works when the exporting country and the investment host country are the same.Specifically,ignoring the “countryspecific” trait under firm-year level data,OFDI will not significantly increase the export value,the number of export destinations and the number of export productdestinations;the number of investment host countries will not significantly increase the number of export destinations yet;when the host country and export destination is different,OFDI will significantly reduce export value.The trade creation effect is stronger in regions with farther geographical and cultural distances from China,and in the case of export destinations with weaker institutional environment,which implies that OFDI could overcome the information asymmetry of export destinations through information spillover channels.In addition,China’s foreign direct investment mainly promotes exports through global production channels.The empirical results show that production-oriented OFDI is more effective than distribution-oriented OFDI;foreign direct investment has a stronger effect on the export of intermediate goods than capital goods and final products.When considering the characteristics of country-specific,technology spillover channels cannot work.(2)Foreign direct investment has a significant “crowding-out effect” on domestic investment and has no significant impact on domestic investment efficiency.The empirical results show that the domestic investment level of firms with foreign direct investment is 15.07 percentage points lower than that of non-OFDI firms on average.This implies that the complementary effect of OFDI on exports does not bring the scale expanding of the domestic production market.After distinguishing firms’ investment motivations and the types of export products,it is found that the “crowding-out effect”of foreign direct investment mainly comes from distribution-oriented and commercial service OFDI,and the expansion of final product exports through foreign direct investment.However,technology-based foreign direct investment can significantly increase domestic investment.This shows that firms cannot obtain higher returns from overseas investment in exporting final products for the purpose of expanding overseas sales markets,which may be due to the lower value-added of China’s export products.While,if firms obtain reverse technology spillovers through foreign direct investment,OFDI has “crowd-in effect” on domestic investment.In addition,with the development of the financial market of the host country and the increasing marketization of the regions where foreign direct investment firms are located,foreign direct investment can play a positive role in promoting domestic investment.This also suggests that even OFDI can expand firm export,OFDI has a “crowding-out effect” on domestic investment as a whole because of financing constraints.(3)Foreign direct investment can significantly reduce the negative impact of the uncertainty of trade policy faced by firms,that is “shelter effect”.The empirical results show that a one standard deviation of Chinese firms’ greenfield investment project in the United States,firms’ short-term capital market returns will increase significantly by 4.69%.Production-oriented foreign direct investment increases firm value more than R&D and business service investment.This proves that foreign direct investment firms can use global production and local production to avoid losses caused by tariff barriers.However,the shelter effect of foreign direct investment on firm value is limited,which is showed that the effect is weaker in the high-tech industries and stateowned firms targeted by the United States during the U.S.-China trade conflict.From the perspective of firm long-term performance,after the outbreak of the U.S.-China trade conflict,OFDI firms’ output,capital input,and labor input are significantly higher than those firms without foreign direct investment.Except the channel of local production,R&D OFDI also has significantly positive effects on firm long-term performance after the outbreak of the trade conflict.These results reveal that foreign direct investment not only helps firms to overcome the decline in short-term returns,but also maintains normal production and operation in the long run when firms face increasing trade policy uncertainty.This study makes the following contributions.(i)Focusing on micro aspect with more comprehensive firm-level data,this study comprehensively evaluates the performance of Chinese OFDI firms from the perspective of its impacts on firms’ operation in both domestic and foreign markets,which supplements to the existing literatures of lacking micro research.(ii)Different from the majority of previous studies that focus on the impact of foreign direct investment at usual time,this study applies event study approach,e.g.,using the U.S.-China trade conflict as a quasi-natural experiment,to analyze how foreign direct investment helps firms to overcome potential risks when facing trade policy uncertainty.(iii)This study attempts to explain the benefits of outward foreign direct investment from the perspective of “global resource allocation”,examining the role of “cross-border production and sales channels”,“information spillover channels” and “technology spillover channels” of foreign direct investment on firm performance.