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Investing Aboard vs. Investing at Home: A Substitute or a Complement?

【Authors】
SUN Haoyu
【WorkUnit】
Shanghai University of Finance and Economies, 200433.
【Abstract】

China, as a net exporter of capital, needs to reform its mode of OFDI to promote the development of domestic investment and industrial upgrading urgently. In this paper, using a China's firm-level data covering the period from 2004 to 2013, we investigate the relationship between firms' OFDI and their investment performance at home. This paper further explores how firms' OFDI can promote the development of domestic investment. Our paper presents lots of interesting facts: (1) OFDI can effectively promote the level of domestic investment in the short run, but it will not continue to be effective in the long run. (2) There is a heterogeneous promoting effect existing in different types of OFDI. When compared with the strong promoting effect of vertical OFDI and producer service OFDI, horizontal OFDI has a weaker influence on promoting the domestic investment. (3) The mechanisms above are achieved by improving the productivity, expanding the scale of enterprises, and increasing the export value. Furthermore, OFDI has a stronger effect on domestic investment when there are lower taxes, more convenient financing channels, more developed technology and less corruption in the destination countries.The empirical results above have important policy implications on the innovation of investment methods and the implementation of the Belt and Road Initiative.


JEL:F21, F23

【KeyWords】
Outward Foreign Direct Investment, Domestic Investment, Long-Term vs Short-Term Effects