Home-country environment and firms’ outward foreign direct investment decision: Evidence from Chinese firms

Qunxi Kong, Rui Guo, Yang Wang, Xiuping Sui and Shimin Zhou

Economic Modelling, 2020, vol. 85, issue C, 390-399

Abstract: This paper takes a holistic view and examines the environmental effect of the home country on firms’ outward foreign direct investment (OFDI) decisions. We construct an economic growth index to assess the overall economic environment of Chinese regions and find that the home country’s business environment is negatively associated with firms’ decisions to invest abroad, and that such a negative relationship can be intensified for firms with state ownership or without an export network. Moreover, unlike previous literature, we look at both the environmental effect on OFDI decisions and the consequential impact of OFDI on firm performance. We employ propensity score matching and difference-in-differences methods, as well as the Heckman two-step model, for our estimations. Our results show that OFDI does indeed improve Chinese firms’ productivity and sales. This paper, therefore, contributes to the literature by identifying a range of home country business environmental factors that have a combined effect on firms’ OFDI decisions, adding to a more comprehensive understanding of OFDI originating from emerging economies.

Keywords: Home-country environment; Economic growth index; Outward FDI; Chinese firms (search for similar items in EconPapers)
JEL-codes: O31 O33 O34 O38 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:85:y:2020:i:c:p:390-399

DOI: 10.1016/j.econmod.2019.11.014

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