Distribution, outward FDI, and productivity heterogeneity: China and cross-countries’ evidence

Abstract

This paper examines distribution-oriented outward FDI using Chinese multinational firm–level data. Distribution outward FDI refers to Chinese parent firms in manufacturing that penetrate foreign markets through wholesale trade affiliates that resell exportable goods. Our estimations correct for rare-events bias and show that distribution FDI are more productive than non-FDI firms but less productive than non-distribution FDI firms. As cross-border communications costs (transportation costs) increase, there is a higher the probability that firms engage in distribution FDI (non-distribution FDI). Our endogenous income-threshold estimates show that high-productivity Chinese firms invest more in high-income countries, but not necessarily in low-income countries.