Outward FDI and Domestic Input Distortions: Evidence from Chinese Firms

Cheng Chen, Wei Tian and Miaojie Yu

The Economic Journal, 2019, vol. 129, issue 624, 3025-3057

Abstract: We examine how domestic distortions affect firms’ production strategies abroad by documenting two puzzling findings using Chinese firm-level data of manufacturing firms. First, private multinational corporations (MNCs) are less productive than state-owned MNCs, but they are more productive than state-owned enterprises overall. Second, there are disproportionately fewer state-owned MNCs than private MNCs. We build a model to rationalise these findings by showing that discrimination against private firms domestically incentivises them to produce abroad. The model shows that selection reversal is more pronounced in industries with more severe discrimination against private firms, which receives empirical support.

Date: 2019
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Citations: View citations in EconPapers (23)

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Working Paper: Outward FDI and domestic input distortions: Evidence from Chinese firms (2015)
Working Paper: Outward FDI and Domestic Input Distortions: Evidence from Chinese Firms
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