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

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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 1 Introduction

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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.

  • 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 US$ 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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10 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

  • n over the same sample period.

OFDI Data Introduction Methodology Data Results Conclusion

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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 ¡

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Evidence from Customs Transaction-level Trade Data

Customs Data Introduction Methodology Data Results Conclusion

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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

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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

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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

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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

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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

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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

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Robustness Checks

 Exclude firms that invest to Hong Kong  Exclude processing firms  Different measures of factor intensity

22 Introduction Methodology Data Results Conclusion

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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
  • ther markets as well

23 Introduction Methodology Data Results Conclusion

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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

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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

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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

  • nly 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

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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

  • verseas 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