Spillover Effect of FDI on Food Exports: Based on Firm-Level Analysis in China

Abstract

This paper examines the spillover effect of foreign direct investment (FDI) on Chinese domestic food exports under firm heterogeneity. By using a rich firm-level panel data of China’s food firms, the empirical analyses rely on the first-order difference generalized method of moments (GMM) for industry-level analysis, and Heckman’s two-stage method for firm-level analysis. The results show that the horizontal FDI led to a positive spillover effect on domestic food industry exports, varying across food subindustries. The paper also finds that a large part of the promotion effect is driven through extensive margin (the probability to export) instead of intensive margin (the quantities of exports) in firm-level analysis. The heterogeneous export spillovers across food firms are further considered to depend on their nature characteristics, like productivity, size, and ownership. Moreover, the heterogeneities of FDI origins and business purpose are confirmed to influence export spillovers. The estimation results are quite robust for different types of regression specifications and substitutions of variable measurement. These findings provide suggestions for decision-makers to carefully assess the impact of FDI and make policy for the sustainable development of domestic food exports.

The Impact of Firm Size and Market Concentration on Firm Productivity

“…Two possible explanations for this finding are that: (1) a high concentration industrial market provides a low incentive for firms to be more productive, as the market leader tends to operate in very efficient large-scale production, and (2) the market leader can steal the market share of other firms, pushing them to be less efficient and even forcing them out of the market. These findings are similar with [6,12,13,26].…”

“…Empirical findings on the relationship between market concentration and firm productivity are still unclear. On the one hand, the market concentration provides a low incentive for firms to be more productive, as the market leaders tend to be very large-scale enterprises, and small firms are left behind in their technology [12,13]. The market leaders can also steal market share from less productive firms, driving the latter to be less productive [3,6].…”

“…The market leaders can also steal market share from less productive firms, driving the latter to be less productive [3,6]. On the other hand, most high-concentration markets have large-scaled and foreign-owned firms with superior productivity [10,12,14,16].…”

“…However, the empirical relationship remains unsolved, particularly in the emerging market [10,11]. Most empirical research finds a negative relationship between market concentration and productivity, showing that increasing market concentration level drives lower productivity of firms [3,6,12,13]. In contrast, several studies find out that most firms with high power in a market are those large-scale and foreign-owned firms with high productivity, which drives the less productive firms out and gain more market power [14][15][16].…”

An asymmetric nexus between clean energy, good governance, education and inward FDI in China: Do environment and technology matter? Evidence for chines provincial data

“…The beneficial effects of FDI on economic progress have been documented in diverse manners, including technological uplift, capital accumulation, operational efficiency, and human capital development, especially in developing nations. Numerous academic studies have proven that foreign direct investment (FDI) has a favorable influence on the economies of recipient countries with the potential to improve manufacturing processes through the so-called technology transfer process, management procedures through market forces and labor mobility, and economic growth through the accumulation of capital to fill the savings gap [ [6] , [7] , [8] , [9] ] (see Fig. 1 ).…”