Whether a firm is able to attract foreign capital and whether it may participate at the export market depends on whether the fixed costs associated with doing so are at least covered by the incremental operating profits. This paper provides evidence that success for some firms in attracting foreign investors and in exporting appears to reduce the associated fixed costs with exporting or foreign ownership in other firms. Using data on 8,959 firms located in Shanghai, we find that contagion and spillovers in exporting and in foreign ownership decisions within an area of 10 miles in the city of Shanghai amplify fixed-cost reductions for both exporting as well as foreign ownership of neighboring firms. Contagion among exporters and among foreign-owned firms, respectively, amplify shocks to the profitability of these activities to a large extent. These findings are established through the estimation of a spatial bivariate probit model.
Firm-Level Exports, Firm-Level Foreign Ownership, Contagion, Spatial Econometrics, Chinese Firms
Working Papers Series
The authors gratefully acknowledge helpful comments by the editor in charge (Zhenlin Yang) and two anonymous reviewers as well as by Baomin Dong and Herbert Egger on earlier versions of the manuscript. Moreover, they are indebted to the participants at the 1st Henan Symposium on Development and Institutional Economics, the Annual World Conference of the Spatial Econometrics Association in 2017, the New York Camp Econometrics in 2015, and the European Trade Study Group Meeting in 2015.
Economic Policy | Economics | Public Affairs, Public Policy and Public Administration
Baltagi, Badi H.; Egger, Peter H.; and Kesina, Michaela, "Contagious Exporting and Foreign Ownership: Evidence from Firms in Shanghai using a Bayesian Spatial Bivariat Probit Model" (2018). Center for Policy Research. 243.
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