Impact of foreign direct investment on Chinese firms' export quality

Activity: Talks or PresentationsPublic Lecture


This paper investigates whether Foreign Direct Investment (FDI) improves or deteriorates the quality of Chinese firms' exports. We use China's FDI regulation changes in 2002 as an instrument variable (IV) for FDI penetration in China. Our IV analysis based on the 2000-2006 data shows a negative effect, which is both statistically significant and economically important, of horizontal FDI on Chinese firms' export quality. We introduce a theoretical model to provide insights to our empirical finding. The mechanism is that FDI intensifies the domestic market competition, which reduces the Chinese firms' incentive to invest in the quality of new products. Our empirical analysis provides a support to this mechanism.
Period7 Sept 2021
Held atDepartment of Economics