Abstract
This article investigates whether and how outward foreign direct investment (OFDI) affects the industrial overcapacity in China. Using the panel data of eight overcapacity industries between 2005 and 2016, the study reveals the effectiveness of OFDI in alleviating China's industrial overcapacity. In particular, it examines the lagged and threshold effects of OFDI on industrial overcapacity. Empirical results show that: First, OFDI in overcapacity industries and their downstream industries exacerbates China's industrial overcapacity problem. Second, the impacts of OFDI on upstream overcapacity industries and their downstream industries have a lagged effect of four and two years, respectively. Third, the threshold value for the impact of OFDI on industrial overcapacity is $16.17109 billion. These findings provide valuable investment references for China and other developing countries seeking to alleviate industrial overcapacity through international capacity cooperation.
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