Firm Productivity, Financial Constraints And Outward Foreign Direct Investment

This research used Firm-level Industrial data and Outward Foreign Direct Investment data of China to examine the relationship between a firm’s productivity and its OFDI activities. We first estimated firms’ Total Factor Productivity (TFP) with three robust approaches (OLS, panel FE, LP), and then examined TFP’s role in firms’ OFDI decision through different proxies of financial constraints. This research claim that,1) all three financing constraints (internal financing, commercial credit, external financing) will affect OFDI decision with external financing a higher weight;2) financing constraints’ marginal effect to OFDI decision is highest in privately-run enterprises and is close to zero in SOEs; and3) investments in R&D are sensitive to TFP; in produce and sales, financing constraints; in commercial and service industries, both.