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Foreign Investment, Technology Transfer, and Firm Reorganization

Paper Session

Friday, Jan. 4, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, International 2
Hosted By: American Economic Association
  • Chair: Caroline Freund, World Bank

Heterogeneous Globalization: Offshoring and Reorganization

Andrew B. Bernard
,
Dartmouth College
Teresa C. Fort
,
Dartmouth College
Valerie Smeets
,
Aarhus University
Fredric Warzynski
,
Aarhus University

Abstract

This paper examines the impacts of offshoring by analyzing how it affects firms’ allocation of resources across activities. We address three key questions. First, we use detailed new data to provide a clear measure of offshoring and to document how it relates to firms’ trading decisions. Offshoring firms tend to produce and import the same products, even after offshoring begins. Second, we show that new industry measures of offshoring based on a firm’s imports of goods that it produces domestically differ markedly from measures based on imported goods that the importer does not produce. Standard measures of import competition contain both types of imports, thereby confounding the effects of import competition and offshoring. Third, we exploit these differences between offshoring and import competition to identify the impact of offshoring on firms’ decisions to reallocate labor away from direct production work towards technology-related occupations. This reallocation of workers is accompanied by increases in offshoring firms’ product development and R&D spending. Firm re-organization highlights the importance of a new channel in which offshoring affects innovation, and may ultimately affect economic performance and growth as well.

International Joint Ventures and Internal Versus External Technology Transfer

Kun Jiang
,
University of Nottingham
Wolfgang Keller
,
University of Colorado Boulder
Larry Qiu
,
University of Hong Kong
William Ridley
,
University of Colorado Boulder

Abstract

This paper studies international joint ventures, where foreign direct investment is performed by a foreign and a domestic firm that together set up a new firm, the joint venture. Employing administrative data on all international joint ventures in China from 1998 to 2007—roughly a quarter of all international joint ventures in the world—we find, first, that Chinese firms chosen to be partners of foreign investors tend to be larger, more productive, and more likely subsidized than other Chinese firms. Second, there is substantial technology transfer both to the joint venture and to the Chinese joint venture partner, an external, intergenerational technology transfer effect that this paper introduces. Third, with technology spillovers typically outweighing negative competition effects, joint ventures generate on net positive externalities to other Chinese firms in the same industry. Joint venture externalities are large, perhaps twice the size of wholly-owned FDI spillovers, and it is R&D-intensive firms, including the joint ventures themselves, that benefit most from these externalities. Furthermore, the positive external joint venture effect is larger if the foreign firm is from the U.S. rather than from Japan or Hong Kong, Macau, and Taiwan, while this effect is virtually absent in broad sectors that include economic activities for which China’s FDI policy has prohibited joint ventures.

Techno-industrial FDI Policy and China’s Export Surge

Yang Liang
,
San Diego State University
Mary E. Lovely
,
Syracuse University and Peterson Institute
Hongsheng Zhang
,
Zhejiang University

Abstract

Researchers emphasize productivity growth of China’s domestic enterprises as well as the granting of permanent trade relations as causes of China’s export surge to the U.S. after 2000. Less well understood is the role of Chinese industrial policy as embodied in its regulation of foreign direct investment, which encourages development of high-technology industries. This gap is troubling, since about half of Chinese exports between 2000 and 2008 originated in foreign- owned enterprises. This paper uses a quasi-natural-experiment approach to assess the effect of changes in Chinese foreign investment policies in 2002, 2004, and 2007 on Chinese exports. Our differences-in-differences analysis strongly supports the view that Chinese FDI policies are effective in promoting exports. We find that favorable treatment of foreign investment in a particular sector promotes entry of foreign firms that export, and that it raises export values in the targeted industry. Results from triple-differenced analysis show that foreign-owned exporters increase in number when such investment is encouraged and that these firms increase the value of their exports relative to their domestic peers. Using detailed China Customs data, we find that preferential treatment of an industry increases its exports at both the intensive and extensive margin and is particularly effective in raising exports to the U.S. Overall, we estimate that changes in FDI policy explain almost one-quarter of China’s export surge and shifted China’s export composition toward high-technology industries. These results are relevant for current discussion of how China uses investment policy to shape its international competitiveness.

Is Chinese Outward Direct Investment Technology Seeking?”

Heiwai Tang
,
SAIS and Johns Hopkins University
Miaojie Yu
,
Peking University
Wei Tian
,
University of International Business and Economics

Abstract

Outward foreign direct investment (OFDI) from emerging markets has been increasing rapidly. A common perception is that this type of OFDI was driven by the countries’ resource and technology seeking motives. Using a novel data set of customs transaction data merged with an official list of firms that conduct OFDI from China, we find evidence of strong export-promotion effects of OFDI at the firm level. We find that after OFDI, exporters increase their number of countries served and export variety, relative to before OFDI and other non-OFDI exporters. The average sales per product line and average unit value of exports both increase, along with product diversification away from existing core competencies. Using unique factor intensity data at the detailed product level, we find that OFDI facilitates exports of more skill- and capital-intensive products at both the intensive margin (existing products) and the extensive margin (new products). The average advertisement intensity of new products after OFDI also increases. Our results provide within-firm evidence behind the complementarity effects of OFDI on exports that have been documented for developed nations.
Discussant(s)
Philip Luck
,
University of Colorado-Denver
Lee Branstetter
,
Carnegie Mellon University
Kun Jiang
,
University of Nottingham
Kyle Handley
,
University of Michigan-Ann Arbor
JEL Classifications
  • F2 - International Factor Movements and International Business
  • F1 - Trade