Date of Award

5-12-2024

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

Advisor(s)

Devashish Mitra

Keywords

Chinese outbound FDI;Export quality;Extensive margins of exports;Machine learning;R&D FDI

Subject Categories

Economics | Social and Behavioral Sciences

Abstract

This dissertation studies the impact of foreign direct investment (FDI) on the exports of developing countries, drawing on evidence from China. It is composed of two chapters. In Chapter 1, I analyze the effects of R&D FDI on export quality, where R&D FDI is investments aimed at establishing offshore research facilities. I construct a novel dataset on China's outbound FDI using supervised machine learning. I analyze over 26,000 pieces of textual information on the primary business activities of Chinese overseas subsidiaries collected by the Ministry of Commerce and identify the objective of each outbound FDI project. I find a positive correlation between R&D FDI and the export quality of Chinese firms. This correlation is especially pronounced in industries with a large scope for product differentiation. Conversely, firms engaging in other forms of FDI do not experience quality improvements post-investment. I develop a partial equilibrium model featuring heterogeneous firms with endogenous quality and production fragmentation to theorize a mechanism for quality upgrading: hiring offshore experts with cutting-edge innovation capabilities. The results in this chapter have significant policy implications for China and the US, where the former promotes outbound FDI as a development strategy, but the latter views it as a threat to national interests. In Chapter 2, I examine the impact of R&D FDI on the extensive margins of exports. Using firm-level data from China, I find that for multi-product exporters engaging in R&D FDI, their number of exported products increases by 35.4%, and their number of countries served increases by 13.3% post-investment. Other forms of FDI, such as marketing and distribution FDI, cannot fully explain this increase among Chinese firms. Additionally, the quality of new products and country entrants is the highest. Continuing exports rank second, and exits rank last.

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Open Access

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