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Outward FDI and domestic input distortions: Evidence from Chinese firms

Cheng Chen (), Wei Tian and Miaojie Yu ()

No HIAS-E-7, Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University

Abstract: This paper studies how discriminations against private enterprises (i.e., non-state-owned enterprises or non-SOEs) in the domestic market affect firms’ investment and production strategies abroad. We first document three puzzling empirical findings using data on Chinese multinational corporations (MNCs). First, private MNCs are less productive than state-owned MNCs. Second, SOEs are less likely to undertake FDI. Third, relative size of state-owned MNCs (compared with non-exporting or non-multinational firms) is larger than that of private MNCs. A theoretical model is built to rationalize these facts. The key economic force is that distortions in the domestic input market incentivize private firms to invest and produce abroad, which results in less tougher self-selection into FDI for those firms (i.e., selection reversal). Compared with state-owned MNCs, private MNCs allocate output disproportionately more in the foreign market, and their size increases disproportionately when they become MNCs. All such theoretical predictions are supported by the data on Chinese MNCs.

Keywords: Outward FDI; Multinational Firms; Institutional Distortion; State-owned Enterprises (search for similar items in EconPapers)
JEL-codes: F13 O11 P51 (search for similar items in EconPapers)
Pages: 57 p.
Date: 2015-09-01
New Economics Papers: this item is included in nep-cna, nep-int and nep-tra
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http://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27471/070_hiasDP-E-7.pdf

Related works:
Journal Article: Outward FDI and Domestic Input Distortions: Evidence from Chinese Firms (2019) Downloads
Working Paper: Outward FDI and Domestic Input Distortions: Evidence from Chinese Firms Downloads
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