China’s outward direct investment and its impact on the domestic economy
Overseas direct investment by Chinese firms increased eight fold over the past decade,
making the country as an important investor in stock terms as Japan. Investing in
leasing and business services appears to make up nearly half of China’s ODI stock
according to official sources, though it is over-estimated owing to the fact that
all investment through third parties and vehicles appears under this sector, not under
the one where the investment is actually made. Correcting for this caveat by using
firm-level M&A and greenfield investment data indicates that in fact China’s ODI mostly
goes to resource-based manufacturing. Also, China is just as an important manufacturing
investor as is Japan. Estimation results show that overseas direct investment affects
domestic employment negatively in the majority of sectors, indicating substitution
instead of a complementary relationship. Furthermore, ODI reduces the speed of labour
market adjustment to its long-run equilibrium and increases the domestic price elasticity
of demand for labour. There is considerable heterogeneity across sectors, but the
impact of ODI on domestic fixed asset investment tends to be negative in most sectors.
Published on October 05, 2021
In series:OECD Economics Department Working Papersview more titles