China & World Economy / 64–89, Vol. 28, No. 5, 2020

Does Outward Foreign Direct Investment
Facilitate China’s Export Upgrading?

Song Zhang, Chunlai Chen

Abstract

This paper empirically investigates the impact of China’s outward foreign direct investment (OFDI) on its export sophistication. Using a provincial-level panel dataset and applying fixed effects and instrumental variable regression techniques, the study finds that, on average, OFDI has no significant impact on China’s export sophistication. However, after the full sample is divided into different regions, the study finds that OFDI has a positive and significant impact on export sophistication in the developed coastal region, but no such impact is observed in the less developed inland regions. Further investigation using a panel threshold model reveals that only when GDP, per capita GDP, human capital, and the research and development intensity of a home economy reach a certain level can OFDI promote export sophistication. The findings suggest that ac-celerating economic development and increasing absorptive capacity can facilitate the contribution of OFDI to China’s export sophistication.