Impact of Outward Foreign Direct Investment on Chinese Manufacturing Firms' Financialization and Servitization

Abstract

AbstractThis study examines the impact of outward foreign direct investment (OFDI) on Chinese manufacturing firms' financialization and servitization. Using a difference‐in‐differences approach with propensity score matching, we found that OFDI encouraged firms' financial and service activities. The effects of OFDI on financialization were stronger for firms specializing in short‐term financial assets, operating in labor and technology‐intensive sectors, investing overseas to pursue production, resources and markets there, and investing in non‐OECD and Belt and Road Initiative (BRI) countries. Meanwhile, firms investing overseas were more likely to provide services at the sale or postsale stages. Outward foreign direct investment has also boosted the service activities of firms operating in the technology‐intensive sector by investing overseas to seek resources and markets, as well as investing in non‐OECD and BRI countries. Finally, OFDI partially influenced the extent of financialization and servitization of firms by affecting their profit‐making ability.