Impact from Productivity and State-ownership of Chinese Agricultural Firms on ODI Decisions

Abstract

Chinese agricultural outward direct investment has grown rapidly over the last decades. Neo-classical foreign direct investment theories can explain the reasons in motivation perspective reasons for the rapid growth, but cannot explain what types of agricultural firms would be most likely to undertake outward direct investment to together make the rapid growth. We use a Chinese agricultural firm level dataset matched from Chinese industrial enterprises database and Chinese outward direct investment enterprises database to empirically examine the relationship between firm heterogeneity and outward direct investment decisions. We find the estimation results support the Helpman-Melitz-Yeaple hypothesis that as the first firm heterogeneity the total factor productivity has a positive influence on the probability that a firm will undertake outward direct investment, which is in accordance with the past related research especially the recent theoretical research progress of international direct investment. In contrast, we find that as the second firm heterogeneity the state ownership has a negative influence on the probability that a firm will undertake outward direct investment, which is not in accordance with the past research on Chinese overall outward direct investment and could be explained by the domestic support obligations of the state-owned agricultural firms in China. Furthermore, we implement robust estimation and the results shows a significant robustness. Our research shows that firm heterogeneity dose matter and it is important to take this into account in analyzing Chinese agricultural firms' outward direct investment decisions.