Export Promotion of OFDI from Emerging Markets...
Transcript of Export Promotion of OFDI from Emerging Markets...
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Export Promotion of OFDI from Emerging Markets – Transaction-level Evidence from China
Wenjie Chen (GWU, School of Business)
Heiwai Tang (Johns Hopkins University, SAIS and CESIfo)
GWU China Conference G2 @ GW, Nov 8, 2013
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China is the world’s fifth largest direct investor
Headlines: Shuanghui acquires
Smithfield CNOOC’s plan to invest in
Unocal Geely buys Volvo of
Sweden Drastic growth of the
country’s OFDI in recent years deserves further investigation.
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10 000.0
20 000.0
30 000.0
40 000.0
50 000.0
60 000.0
70 000.0
80 000.0
90 000.0
in U
S$
mil
Chinese Outward Direct Investment Flows
Background
Source: UNCTAD, 2012
Motivation Introduction Methodology
Data Results Conclusion
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Mining
Wholesale and retail trade
Banking
Leasing and business services
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010
Share of China’s OFDI flows
Motivation Introduction Methodology
Data Results Conclusion
Source: China’s Ministry of Commerce
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Typical motives for OFDI:
Resource seeking
Technology seeking
Export promotion (market seeking)
The share of OFDI from “Leasing and Business Services” + “Wholesale and Retail Trade” accounted for over half of the aggregate volume of China’s OFDI flows in 2010 (27 percent in 2006).
Benchmark: Mining (8 percent) and banking (13 percent) of OFDI flows in 2010
Background
Motivation Introduction Methodology
Data Results Conclusion
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Background
Common perception is that Chinese OFDI have resource and technology seeking motives
Our focus is on export promotion
Entering new export market requires overcoming fixed costs, uncertainty, and other business obstacles:
Adapting to new customers’ taste and demand
Adjusting to host country’s business climate, cultural patterns, structure of market system
Complying with host countries’ local regulations and requirements
Solution: Setting up office in host country to tackle obstacles mentioned above
Question Introduction Methodology
Data Results Conclusion
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Research Question
Using comprehensive micro data, we ask:
Does FDI complement or substitute firm exports?
At which margin of exports does FDI complement or substitute exports?
How does FDI affect trade performance?
Are there third-market effects of FDI on exports?
Question Introduction Methodology
Data Results Conclusion
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Preview of Results
Using merged data between customs transaction-level trade data and our OFDI firm data (1,800 firms over 2000-2006):
Findings: after conducting OFDI, firms’ Export volume, unit values, varieties, and destinations all
increase; Diversification away from core competencies;
Introduction Methodology
Data Results Conclusion
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Preview of Results con’t
Findings: after conducting OFDI, firms’ Capital and skill intensities of exports increases;
Third-market effects: increase in unit values, skill and advertising intensity of new products;
Conclusion: FDI from China complements rather than substitutes
exports. OFDI also raises level of sophistication of firm’s exports
It is worth noting that the complementary effects are not confined to the OFDI destination only
Introduction Methodology
Data Results Conclusion
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Literature Review
Chinese OFDI: Deng (2003, 2004); Buckley et al. (2007); Antkiewicz and Whalley (2007); Cheng and Ma (2007); Huang and Wang (2011) FDI and exports as substitutes: Brainard (1997); Markusen and Venables (2000); and Helpman, Melitz, and Yeaple (2004) FDI and exports as complements: Lipsey and Weiss (1981, 1984); Yamawaki (2001); Graham (2000); Clausing (2000) Both complementarity and substitution effects: Blonigen (2001) and Conconi et al. (2012) Export-platform production: Antras (2003); Grossman, Helpman, and Szeidl (2003); Yeaple (2003); Conconi et al. 2012
Introduction Methodology
Data Results Conclusion
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Introduction Methodology
Data Results Conclusion
Contribution
Provides micro evidence on OFDI from developing countries
Documents detailed relationship between OFDI and trade at firm and sub-firm level
Factor intensities of exports after OFDI
New Product Dimension
Examines third-market effects
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Data
Outward foreign direct investments by Chinese companies provided by the China’s Ministry of Commerce.
The data set covers OFDI deals between January 1, 1998 and December 31, 2009.
Contains information on investing firm's name, firm's industry, province of origin, and the destination of the investment.
No value of the deal.
9,744 deals from 7,202 unique firms (most comprehensive we are aware of).
Compare the number of deals in our data with those studied by Huang and Wang (2011). Our data set covers 90 percent of the deals from Zhejiang, the province they focus on over the same sample period.
OFDI Data Introduction Methodology
Data Results Conclusion
Top 10 OFDI destinations
OFDI Data Introduction Methodology
Data Results Conclusion
Country Frequency Percent
Hong Kong, China 1,946 19.97
United States 918 9.42
Russian FederaBon 551 5.65
Vietnam 464 4.76
United Arab Emirates 370 3.8
Japan 360 3.69
Korea, Rep. 299 3.07
Germany 270 2.77
Lao PDR 267 2.74
Australia 236 2.42
Evidence from Customs Transaction-level Trade Data
Customs Data Introduction Methodology
Data Results Conclusion
Customs Trade Data
The universe of Chinese import and export transactions 2000 and 2006.
Data on imports and exports (in USD) at the HS 8-digit (>7,000 products) level from a firm to/from each country.
60-80% of the deals can be merged.
Customs Data Introduction Methodology
Data Results Conclusion
Margin of Exports - Breakdown
Follow Bernard, Redding and Schott (2009), decompose firm export volume into various margins:
where Xi is firm i’s volume of exports (in a given year) Nic is # of countries Nih is # of products exported oich is firm’s number of positive country-product transactions
A A
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and
Export and OFDI Introduction Methodology
Data Results Conclusion
Margins of Export – Extensive Margin
Across all Countries
Dependent Var: ln(Exp value) ln(# of
country) ln(# of HS6)
ln(Avg Exp) ln(Density)
OFDI dummy 0.336*** 0.128*** 0.136*** 0.148*** -0.075*** (0.045) (0.020) (0.021) (0.034) (0.014)
Firm FE Yes Yes Yes Yes Yes Year FE Yes Yes Yes Yes Yes R-squared .0781 .0767 .03 .0327 .0363 Nb of Obs 628048 628048 628048 628048 628048 * p<0.05; ** p<0.01; *** p<0.001.
OFDI = 1 for all firm-years when and after a firm reported overseas investment. Robust standard errors reported in brackets.
Controlling for firm and year fixed effects
Introduction Methodology
Data Results Conclusion
Margins of Export – Intensive Margin
Same Country as OFDI Destination
Dependent Var: ln(Exp value) ln(#of HS6) ln(Average Exp)
OFDI dummy 0.116*** 0.0487*** 0.0674*** (0.014) (0.006) (0.012)
Firm FE Yes Yes Yes Year FE Yes Yes Yes R-squared .0322 .0144 .0225 Nb of Obs 5691703 5691703 5691703 * p<0.05; ** p<0.01; *** p<0.001.
OFDI = 1 for all firm-years when and after a firm reported overseas investment. Robust standard errors reported in brackets.
Controlling for firm and year fixed effects
Introduction Methodology
Data Results Conclusion
Unit Value of Products after OFDI
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Dep Variable: log Unit Value OFDI dummy (OD) 0.187***
(0.012)
OD same country 0.214*** (0.029)
OD diff country 0.184*** (0.012)
OD same; adv 0.269*** (0.049)
OD same; dev 0.179*** (0.034)
OD diff; adv 0.174*** (0.021)
OD diff; dev 0.189*** (0.015)
Firm FE Yes Yes Yes Country FE Yes Yes Yes R-squared 0.336 0.336 0.336
Nb of Obs 24,980,644 24,980,644 24,980,644 * p<0.05; ** p<0.01; *** p<0.001. OFDI = 1 for all firm-years when and after a firm reported overseas investment. Robust standard errors reported in brackets.
OFDI and Customs Introduction Methodology
Data Results Conclusion
Factor Intensity of Products after OFDI
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Dep Variable: log K int log S int log RD int log ADV int
OFDI dummy (OD) 0.187*** 0.006 0.023 0.021
(0.012) (0.004) (0.021) (0.018)
Firm FE Yes Yes Yes Yes
Year FE Yes Yes Yes Yes
Nb of Obs 751379 750436 745641 747990
* p<0.05; ** p<0.01; *** p<0.001.
OFDI = 1 for all firm-years when and after a firm reported overseas investment. Robust standard errors reported in brackets.
Controlling for firm and year fixed effects
OFDI and Customs Introduction Methodology
Data Results Conclusion
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Dep Variable: log(Knew /
Kold) log(Knew /
Kold)
log(Snew /Sold)
log(Snew /Sold)
log(RDnew /RDold )
log(RDnew /RDold )
log(ADnew /ADold)
log(ADnew /ADold)
OFDI Dummy (OD) -0.031+ 0.001 -0.01 0.033
(0.016) (0.007) (0.040) (0.033) OD same country 0.023 0.026*** 0.065 0.080**
(0.017) (0.008) (0.040) (0.034) OD different country 0.014 0.022*** 0.046 0.066**
(0.016) (0.008) (0.040) (0.032)
Nb of Obs 389610 390740 389203 390332 386044 387166 387881 389008
* p<0.05; ** p<0.01; *** p<0.001.
OFDI = 1 for all firm-years when and after a firm reported overseas investment. Robust standard errors reported in brackets. Controlling for firm and year fixed effects
New Product Dimension
OFDI and Customs Introduction Methodology
Data Results Conclusion
Ratio of export-weighted average of intensity measure for newly added products to existing products
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Dep Variable: Log(Knew /Kold) log(Snew /Sold) log(RDnew /
RDold ) log(ADnew /
ADold)
OD same; adv -0.001 0.029** 0.054 0.140**
(0.027) (0.013) (0.070) (0.056)
OD same; dev 0.041+ 0.023** 0.072 0.037
(0.022) (0.010) (0.047) (0.041)
OD diff; adv -0.008 0.024+ 0.013 0.124**
(0.025) (0.012) (0.066) (0.054)
OD diff; dev 0.029 0.021** 0.070 0.022
(0.021) (0.010) (0.048) (0.040)
Nb of Obs 390740 390332 387166 389008 * p<0.05; ** p<0.01; *** p<0.001. OFDI = 1 for all firm-years when and after a firm reported overseas investment. Robust standard errors reported in brackets.
Controlling for firm and year fixed effects
New Product Dimension
OFDI and Customs Introduction Methodology
Data Results Conclusion
Robustness Checks
Exclude firms that invest to Hong Kong
Exclude processing firms
Different measures of factor intensity
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Introduction Methodology
Data Results Conclusion
Conclusion
Firms conducting OFDI experience increase in # of countries, # of products, avg value of sales per product-
country line, and spread out its sales away from core competencies (i.e., less concentrated).
OFDI helps firms export more “difficult” products (e.g., skill-intensive & advertisement-intensive).
We also find interesting third-market effects complementing existing literature
Highlight that horizontal OFDI from exporters in developing countries two purposes: Lowers export costs in host countries; Transfer skill and marketing capabilities that help penetrate in
other markets as well
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Introduction Methodology
Data Results Conclusion
Thank You! Comments welcome!
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APPENDIX
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Examples of OFDI and Export Firms
Company: Nanjing Textiles Import & Export Corp Ltd. (南京纺织品进出口股份有限公司) Foreign Affiliate: HotPoint Ltd. (热点(澳大利亚)有限公司)
Company: Jiangsu Guotai International Group (江苏国泰国际集团国贸股份有限公司) Foreign Affiliate: 江苏国泰国际集团国贸股份有限公司驻德国代表处
Company: Heilongjiang Huayu Industry and Trade Co.,Ltd (黑龙江华宇工贸集团有限责任公司) Foreign Affiliate : Huahai Wood. Ltd. 东宁县华宇木业有限责任公司
(东宁县华海木业有限责任公司) Company: Xiamen Overseas Chinese Electronic Co., Ltd. (厦門华侨电子股份有限公司) Foreign Affiliate : Sinoprima (厦华电子南非公司)
Company: Haier Group (海尔集团电器产业有限公司) Foreign Affiliate : Haier Europe (海尔(欧洲)控股公司)
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Characteristics of OFDI Firms from Manufacturing Firm Survey
Manufacturing Firm Survey Data
Source: National Bureau of Statistics (NBS),1998-2009
All state-owned firms and all private firms with sales > 5 million RMB (about 600K USD during the sample period)
Balanced-sheet variables: firm ownership, output, value added, exports
Merge it with our OFDI data based on firm name;
27-55% of the deals can be merged
NBS Data Introduction Methodology
Data Results Conclusion
OFDI “Effects” on Firm Size and Performance
Dep Var: ln(Sales) ln(Value Added) ln(Emp) OFDI 2.056*** -0.027 1.809***
(0.342) (0.050) (0.287) R-squared 0.424 0.245 0.369 Nb of Obs. 2352687 1515828 2718572
Dep Var: Labor prod Export/ Sales ln(Value Added/
Sales) ln(RD/Sales) OFDI 0.278* 0.260*** -0.008 0.298***
(0.108) (0.016) (0.013) (0.078) R-squared 0.56 0.272 0.251 0.187 Nb of Obs. 2531859 2352687 1551447 902316 OFDI = 1 for all firm-years when and after a firm reported overseas investment. The number of observations fluctuates because data for some variables are not available in all years (e.g., R&D only for 2003-2005). Standard errors, clustered at the industry level (2-digit), are in brackets. * p<0.05; ** p<0.01; *** p<0.001
Controlling for firm and year fixed effects:
OFDI and NBS Introduction Methodology
Data Results Conclusion
OFDI Participation
Dependent Var OFDI Dummy Sample All Exclude HK as a Host ln(Sales) 0.233*** 0.213***
(0.013) (0.014) ln(Empl) 0.0649*** 0.0694***
(0.014) (0.015) SOE -‐0.178*** -‐0.222***
(0.049) (0.055) HKMT -‐0.342*** -‐0.409***
(0.027) (0.031) Foreign -‐0.289*** -‐0.290***
(0.025) (0.026) ln(Labor Prod) -‐0.009 -‐0.006
(0.011) (0.012) Exp/Sales 0.596*** 0.606***
(0.025) (0.026) Raw material/Sales -‐0.049 -‐0.070
(0.062) (0.066) Industry FE Yes Yes Province FE Yes Yes N 979884 979544 OFDI = 1 for all firm-years when and after a firm reported overseas investment. The number of observations fluctuates because data for some variables are not available in all years (e.g., R&D only for 2003-2005). Standard errors, clustered at the industry level (2-digit), are in brackets. * p<0.05; ** p<0.01; *** p<0.001
OFDI and NBS Introduction Methodology
Data Results Conclusion
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Dep Variable: log K int log S int log RD int log ADV int
OD same; adv 0.047** 0.038*** -0.009 0.043
(0.018) (0.010) (0.052) (0.045)
OD same ; dev -0.011 -0.008 -0.107*** -0.060**
(0.015) (0.007) (0.032) (0.029)
OD diff; adv -0.012 -0.005 0.023 -0.034
(0.015) (0.007) (0.039) (0.033)
OD diff ; dev 0.041*** 0.009 -0.044 -0.021
(0.012) (0.006) (0.030) (0.025)
Nb of Obs 752625 751680 746880 749233 * p<0.05; ** p<0.01; *** p<0.001.
OFDI = 1 for all firm-years when and after a firm reported overseas investment. Robust standard errors reported in brackets.
Controlling for firm and year fixed effects:
Factor Intensity of Products after OFDI
OFDI and Customs Introduction Methodology
Data Results Conclusion
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Dep Variable: log K int log S int log RD int log ADV int
Same country 0.016 0.013** -0.063** -0.013
(0.012) (0.006) (0.030) (0.026)
Diff country 0.017+ 0.002 -0.015 -0.027
(0.009) (0.005) (0.024) (0.020)
Firm FE Yes Yes Yes Yes
Year FE Yes Yes Yes Yes
Nb of Obs 752625 751680 746880 749233 * p<0.05; ** p<0.01; *** p<0.001. OFDI = 1 for all firm-years when and after a firm reported overseas investment. Robust standard errors reported in brackets.
Controlling for firm and year fixed effects:
Third Market Effects
OFDI and Customs Introduction Methodology
Data Results Conclusion