Financing constraints and ODI margins: Evidence from China

Abstract

Using a novel firm-level dataset on China, this paper examines the effects of financing constraints on enterprises’ outward direct investment (ODI) from the perspective of binary margins of ODI. The main findings of the paper are threefold. First, financing constraints show a negative effect on enterprises’ ODI for both the intensive and extensive margins, with a more significant effect on the extensive margin. Second, the negative effect is mostly significant in the energy industry, while it is not significant in non-energy industries. Finally, financing constraints show a negative effect on state-owned enterprises for both margins, while the effect is less significant for non-state-owned enterprises. The findings in the paper have policy implications for understanding and promoting ODI in emerging economies.