On the spillover effect of China's outward FDI in Germany

Abstract

AbstractThe outward foreign direct investments of China have been steadily decreasing since the 21st century up to a point where the country has begun to passively accept direct investments from outsiders and holding off its active investments in expansion. Such trend has motivated scholars to examine the effects of countering investment. In line with these efforts, this study uses German firm‐level data from the Academus database to examine the investment of China in Germany as its research object. Using the new investment review system as a quasi‐natural experimental event construction instrument variable, an empirical analysis of how the investments of China in Germany can produce spillover effects on the productivity of German firms highlights the significant and robust effects of such investments as well as their negative horizontal and backward vertical spillover. Such negative spillover effect is particularly salient among German industries with low product heterogeneity, import and export intensities, and R&D levels of China.