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How Does Capital Intensity Affect the Relationship between Outward FDI and Productivity? Micro-evidence from Chinese Manufacturing Firms

ABSTRACT Based on outward foreign direct investment (OFDI) data of Chinese manufacturing companies in the period of 2001–2016, this paper examines the impact of capital intensity on the casual relationship between OFDI and productivity. Results show that, first, the pre-entry productivity of OFDI firms is higher than that of non-OFDI firms only for labor-intensive firms but not for capital-intensive firms, which suggests the self-selection effect only holds for labor-intensive firms. Second, the post-entry productivity improvement of OFDI firms only gained by capital-intensive firms but not by labor-intensive OFDI firms, which suggests the learning-by-doing effect only holds for capital-intensive firms. One possible explanation for these results is that the OFDI purpose of capital-intensive firms is to achieve technical progress while the OFDI purpose of labor-intensive firms is to gain profits.