Uncertainty of Market and Outward Direct Foreign Investment—Theory and Evidence from Chinese Firms
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| Title | Uncertainty of Market and Outward Direct Foreign Investment—Theory and Evidence from Chinese Firms
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| Author | Jiang Guanhong |
| Organization | Xiamen University |
| Email | jiangguanhong2009@163.com |
| Key Words | Outward Direct Foreign Investment; Exporting OFDI; Manufacturing OFDI; Uncertainty |
| Abstract | The paper investigates impact of uncertainty of market in host country on the mode of OFDI. We develop a simple theory model in order to examine the impact of uncertainty in host country on the mode of entry of foreign firms. We show that in more uncertain destinations most firms serve the market via exporting OFDI. Meanwhile in more uncertain markets firms experience longer exporting OFDI before building a manufacture in there. We take the prediction of model to the data using Chinese firms. We find that the theory consists with empirical evidence. The paper also treats bilateral investment treaty (BIT) as quasi natural experiment. Since the BIT decrease uncertainty, most firms serve the market via manufacturing OFDI after signing BIT. It also shorts experience of exporting OFDI before entry with manufacturing OFDI. Due to difference of institution also creates uncertain, we find that difference of institution brings the same effects as BIT. |
| Serial Number | WP1419 |
| Time | 2019-09-26 |
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