Export Promotion of OFDI from Emerging Markets Transaction-level - PowerPoint PPT Presentation

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 1

Introduction Data Motivation Methodology Results Conclusion Background Chinese Outward Direct  China is the world’s fifth Investment Flows largest direct investor 90 000.0  Headlines: 80 000.0  Shuanghui acquires 70 000.0 Smithfield 60 000.0  CNOOC’s plan to invest in in US$ mil 50 000.0 Unocal 40 000.0  Geely buys Volvo of 30 000.0 Sweden 20 000.0  Drastic growth of the 10 000.0 country’s OFDI in recent years deserves further - investigation. Source: UNCTAD, 2012 2

Introduction Data Motivation Methodology Results Conclusion Share of China’s OFDI flows 100% 90% Leasing and business 80% services 70% 60% 50% Banking 40% 30% Wholesale and retail trade 20% 10% Mining 0% 2006 2007 2008 2009 2010 Source: China’s Ministry of Commerce 3

Introduction Data Motivation Methodology Results Conclusion Background  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 4

Introduction Data Question Methodology Results Conclusion 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 5

Introduction Data Question Methodology Results Conclusion 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? 6

Introduction Data Methodology Results Conclusion 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; 7

Introduction Data Methodology Results Conclusion 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 8

Introduction Data Methodology Results Conclusion 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 9

Introduction Data Methodology 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 10

Introduction Data OFDI Data Methodology Results Conclusion 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. 11

Introduction Data OFDI Data Methodology Results Conclusion Top 10 OFDI destinations 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 ¡

Introduction Data Customs Data Methodology Results Conclusion Evidence from Customs Transaction-level Trade Data

Introduction Data Customs Data Methodology 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.

Introduction Data Export and OFDI Methodology Results Conclusion Margin of Exports - Breakdown  Follow Bernard, Redding and Schott (2009), decompose firm export volume into various margins:  where X i is firm i’s volume of exports (in a given year)  N ic is # of countries  N ih is # of products exported  o ich is firm’s number of positive country-product transactions  A and  A 15

Introduction Data Methodology Results Conclusion Margins of Export – Extensive Margin Across all Countries ln(# of ln(# of ln(Avg ln(Exp value) Dependent Var: country) HS6) 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 Data Methodology Results Conclusion Margins of Export – Intensive Margin Same Country as OFDI Destination ln(Exp value) ln(#of HS6) ln(Average Exp) Dependent Var: OFDI dummy 0.116*** ¡ 0.0487*** ¡ 0.0674*** ¡ (0.014) ¡ (0.006) ¡ (0.012) ¡ Yes Yes Yes Firm FE Yes Yes Yes Year FE .0322 ¡ .0144 ¡ .0225 ¡ R-squared 5691703 ¡ 5691703 ¡ 5691703 ¡ Nb of Obs * 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 Data OFDI and Customs Methodology Results Conclusion Unit Value of Products after OFDI 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. 18

Introduction Data OFDI and Customs Methodology Results Conclusion Factor Intensity of Products after OFDI 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 19