A Firm Level Study On The Self-selection Effect Of Shandong Province’s Outward Direct Investment Using The Theoretical Framework Of Firm Heterogeneity

This paper is based on the firm heterogeneity theoretical framework combining the firm level direct investment realities of Shandong province by both theoretical analysis and empirical test. Firm heterogeneity theory is at the forefront of the current international economic study. However, the firm heterogeneity theory is developed mainly in the developed country context, whether or not can be applied equally in the context of developing economies is debatable. There are still some significant factors that may affect the explanatory power of the firm heterogeneity theory through different mechanisms, such as institution design, property distribution, immature market mechanism. However, the research on the theory of heterogeneous firms focused on the empirical export behavior productivity while the study on foreign direct investment behavior and productivity of research is relatively small. As one of the largest economies in China, Shandong province is also outstanding in the field of foreign direct investment. In recent years, the development of Shandong province’s ofdi is remarkable. However there are also some problems, small-scale investments, investment inefficiency, the lack of ability to multinational enterprises and other issues. Research on Shandong province’s foreign direct investment have focused on the macro level, the micro level perspective needs to be developed.First, the paper summarizes the studies on firm heterogeneity model and empirical models to complement and development of firm heterogeneity model. In addition, the paper also reviews the previous study on foreign direct investment theory. The summing up of previous relevant research is the theoretical foundation of this paper.Second, through the development status of foreign direct investment in Shandong province. This paper combined typical characteristics of Shandong province foreign direct investment in recent years with the classical framework. On the basis of the classical model of firm heterogeneity, the abstract characteristics were modeled by changes in the theoretical model assumptions. This paper also add variables to construct the corresponding mathematical models to analysis the relationship between foreign direct investment and productivity.Subsequently, the paper selects listed companies in Shandong province as the data resource, using a variety of firm-level productivity calculation methods, the relationship between the behavior of foreign investment enterprises in Shandong province and enterprise productivity between foreign direct investment enterprises that self-selection effect are empirically tested. The results is not consistent with the theoretical model constructed in this paper. The conclusion is that although productivity is an significant factor in foreign direct investment of Shandong province’enterprises, but the productivity is not the only decisive factor. Finally, the reason why the test results with theoretical expectations inconsistent firm heterogeneity are analyzed and put forward the corresponding policy recommendations.