Lin, Chih-Fan
A icle
Does Chinese OFDI eally p omo e expo ?
China Finance and Economic Re iew
P o ided in Coope a ion wi h:
Sp inge Na u e
Sugges ed Ci a ion: Lin, Chih-Fan (2016) : Does Chinese OFDI eally p omo e expo ?, China Finance
and Economic Re iew, ISSN 2196-5633, Sp inge , Heidelbe g, Vol. 4, pp. 1-16,
h ps://doi.o g/10.1186/s40589-016-0037-8
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RESEARCH Open Access
Does Chinese OFDI eally p omo e expo ?
Chih-Fan Lin
Co espondence:
[email p o ec ed]
The Wang Yanan Ins i u e o
S udies in Economics, Xiamen
Uni e si y, No. 422 o Siming Sou h
Road, Siming Dis ic , Xiamen Ci y,
Fujian P o ince, People’s Republic
o China
Abs ac
Backg ound: Mos pape s ha e come o posi i e conclusions ega ding whe he
Chinese ou wa d o eign di ec in es men eally p omo e expo .
Me hods: This pape con ibu es by co ec ing model misspeci ica ion, w ong
a iable selec ion and es ima ion me hods which a e p e alen in exis ing s udies
and eexamine he ela ionship be ween ou wa d o eign di ec in es men and
expo ade o China using panel da a om 2003 o 2014.
Resul s: The eg essions indica e ha , on a e age, he poin es ima e o he elas ici y
be ween Chinese ou wa d o eign di ec in es men and expo ade is a mos 0.
073, and i is no s a is ically signi ican . Sub-sample eg essions show ha Chinese
in es men in de eloped economies sligh ly subs i u es expo while in es men in
de eloping economies complemen s expo . Bu hese e ec s disappea when
coun y-speci ic e ec s a e con olled. Yea -by-yea eg essions show ha he
complemen a y e ec o OFDI on expo is on a s eady ise.
Conclusions: Using co ec ly speci ied model wi h mo e app op ia e a iable selec ion
and es ima ion me hods and ake in o accoun he quan i a i e di e ence be ween
OFDI and expo , any “subs i u iona y”o “complemen a y”e ec is indeed negligible.
Keywo ds: Ou wa d o eign di ec in es men , Expo , Complemen a ion e ec ,
Subs i u ion e ec
Backg ound
In oduc ion
Wi h he con inuous g ow h o Chinese economy, Chinese ou wa d o eign di ec in es -
men de elops apidly. F om he yea o 2003 when he “s a is ical bulle in o Chinese o -
eign di ec ”was i s published o he yea o 2014, Chinese o eign di ec in es men low
g ew om $28.5 billion o $1231.2 billion and he accumula ed s ock g ew om $299 bil-
lion o $8826.4 billion, wi h he a e age annual g ow h a e being 40.8 and 36.0 %, espec -
i ely. In 2014, Chinese o eign di ec in es men accoun ed o 9.1 and 3.4 % o global
low and s ock, espec i ely, anks he hi d and eigh h in he wo ld; 18.5 housand Chin-
ese in es o s ha e se up 29.7 housand en e p ises ha dis ibu e in 186 o eign coun ies
( e i o ies), which indica es ha China has g adually de eloped om a capi al a ac ion
coun y o an in es men coun y. A he same ime, China has long become a majo
expo ing economy since he 1990s. China’s o al expo s in 2014 amoun ed o $2.34 il-
lion, anking i s in he wo ld. In he new backg ound ha China ac i ely p omo es he
“One Bel and One Road”s a egy in neighbo ing coun ies, i is a g ea e de elopmen
oppo uni y o Chinese o eign di ec in es men , which makes he e ec o o eign
an
d
China Finance
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© The Au ho (s). 2016 Open Access This a icle is dis ibu ed unde he e ms o he C ea i e Commons A ibu ion 4.0 In e na ional
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Lin China Finance and Economic Re iew (2016) 4:13
DOI 10.1186/s40589-016-0037-8
di ec in es men on expo ade an impo an issue. Di e en conclusions indica e di -
e en policy implica ions: i he OFDI o China had a p omo ing e ec on expo s, i
would be necessa y o ake po en ial ade ic ions and dispu e isks in o conside a ion
and o p ope ly manage he expanding ade su plus and exchange p essu es on RMB. I
he OFDI o China had a subs i u ion e ec on expo , i would be necessa y o assess he
nega i e e ec o capi al expo and sh inking expo on domes ic economic g ow h and
employmen in o de o a oid he epea ing mis ake o indus ial hollowing-ou caused by
OFDI as some de eloped coun ies ha e expe ienced in his o y (Liu and Nie 2014).
Classical li e a u es ha e ully discussed he e ec o OFDI on expo s: Based on he
Hecksche -Ohlin in e na ional ade model, Mundell (1957) demons a ed ha i he wo
economies ha e simila p oduc ion unc ions and consume demands, in e na ional di ec
capi al in es men would equalize he ac o endowmen s uc u e and he ela i e p ices.
Commodi ies o iginally p oduced and expo ed would now be p oduced in ano he coun y
h ough he low o p oduc ion ac o s. In his sense, he low o p oduc ion ac o capi al is
equal o ha o goods, which indica es ha expo would be eplaced. Howe e , Schmi z
and Helmbe ge (1970) sugges ed ha he analysis amewo k was only sui able o in a-
indus y ade o manu ac u ed goods. When de eloped coun ies in es ed in he de elop-
ing coun ies wi h abundan na u al esou ces, he capi al coun y expo s machines, equip-
men s, and o he capi al goods o he hos coun y while he hos coun y expo s c ude oil,
i on o e, and o he p ima y p oduc s. This in es men - ade pa e n would inc ease in e -
na ional ade. Mo e b oadly speaking, when he capi al coun y and hos coun y ha e e -
ical di ision o labo , OFDI would p omo e he expo o in e media e goods o he capi al
coun y (Helpman 1984). The heo y o p oduc li e cycle p o ides ano he pe spec i e: Ve -
non (1966) poin ed ou ha in he ea ly li e s age o a p oduc , R&D and he expo o he
p oduc we e ca ied ou in he domes ic coun ies.In hema u eanddeclinepe iod, ising
p oduc ion cos s would make he a ional i ms ans e he p oduc ion p ocess o o he
coun ies wi h low ac o cos h ough di ec in es men , which would lead o less expo .
Kojima (1975) held a di e en iew and he sugges ed ha he ans e o “ma ginal indus-
ies” ha ha e los he compa a i e ad an age would p omo e he expo o capi al goods
and in e media e p oduc s o he hos coun y, which indica es ha FDI would inc ease he
expo . A he same ime, he capi al coun y would impo manu ac u ed goods om he
hos coun y. The o eign di ec in es men andg adien indus ial ans e wi h Japan ac -
ing as he leading goose had a signi ican posi i e e ec on he in e na ional ade and eco-
nomic g ow h in Eas Asia in he 1980s o 1990s o he las cen u y.
The e a e o he li e a u es explo ing he ela ionship be ween FDI and expo om
he pe spec i e o i m decision-making. Hi sch (1976) poin ed ou ha he mul i-
na ional co po a ion had wo al e na i e ways o en e ing he o eign ma ke s: expo
and FDI. Fi ms made a ional decisions based on domes ic and o eign p oduc ion
cos s, anspo a ion cos s, sales cos s, and o he ac o s. He also hough ha i was
a i ha pushes he expo cos s o i ms, which made he a i -jumping become one
o he causes o FDI. Buckley and Casson (1981) conside ed he e ec s o ma ke
demand size: Fo i ms, expo had a highe ma ginal cos due o in e na ional
shipping, cus oms du ies, and o he ac o s, bu he ixed cos is low, which is sui able
o mee ing smalle ma ke demands. Es ablishing ac o ies in o eign coun ies, on he
o he hand, en ails highe ixed cos s bu lowe ma ginal cos s, which is sui able o
mee ing la ge ma ke demands. When he o eign ma ke demand g ows apidly, he
Lin China Finance and Economic Re iew (2016) 4:13 Page 2 o 16
i m would p e e he o eign di ec in es men ha has he ad an age o economy o scale.
In he amewo k o cos analysis, o eign di ec in es men and expo ade a e mu ually
subs i u ed. Howe e , cos is no he only ac o . Helpman (1984) conside ed ha wi h e-
spec o he hos companies, he mul ina ional co po a ions end o ha e mo e ad anced p o-
duc ion echnology, managemen , and R&D capabili y. Fo he main enance o hese unique
ad an ages and a oiding imi a ion o compe i o s, mul ina ional co po a ions may be unwill-
ing o make ex e nal ma ke ansac ions, bu p e e in a- i m ade ha pu chases machin-
e y equipmen and in e media e goods om hos coun y, which inc eases he expo o hos
coun y. In addi ion, in he ade heo y o he e ogeneous i ms (Helpman e al. 2004), i is
p oduc i i y ha de e mines he way ha i ms en e o eign ma ke s: i ms wi h highe
p oduc i i y, la ge scale, and mo e abundan esou ces can pay a highe up on cos s, bea
highe isk, and also end o en e o eign ma ke in he way o di ec in es men . On he
con a y, i ms wi h lowe p oduc i i y would choose he expo ing mode wi h low ixed cos .
Fo eign di ec in es men and expo ing a e wo kinds o al e na i e endogenous choices.
The abo e heo e ical li e a u es ha e eached no consensus. Simila ly, among empi -
ical li e a u es conce ning o he coun ies, some suppo s he complemen a ion e ec
(Lipsey and Weiss 1981, 1984; Head and Ries 2001; Chen and Tang 2014) while o he s
suppo he subs i u ion e ec (Ho s 1972; Belde bos and Sleuwaegen 1998; Obe ho e
and P a e may 2012). In a wo d, he in es men in di e en coun ies, indus ies,
de elopmen s ages, and o di e en mo i a ions shows di e en e ec s on expo s.
Howe e , ob iously di e en om o eign li e a u es, domes ic esea ches a e s ik-
ingly consis en , nea ly all o hem showing ha Chinese FDI signi ican ly p omo es ex-
po s. Bu his pape inds ha hese conclusions a e doub ul due o he disad an ages
o a iable selec ion, model se ing, and es ima ion me hods. The es ima ion o he po-
en ial impac o FDI in he si ua ion o “One Bel and One Road”depends on he ac-
cu acy and obus ness o empi ical esea ch. The e o e, he ma ginal con ibu ion o
his pape is o co ec hese e o s and o eexamine he e ec o OFDI on expo s
using panel da a om 2003 o 2014. The conclusion o his pape ejec s he common
unde s anding ha Chinese FDI p omo es he expo s. Mo eo e , his pape also p o es
ha di e en conclusions a e achie ed by co ec ing model misspeci ica ion, w ong
a iable selec ion, and es ima ion me hods, no due o he use o a di e en sample.
Conclusions and p oblems in he exis ing li e a u e
Does Chinese FDI eally p omo e expo ? The exis ing li e a u es in China p o ide
a i ma i e answe s. Based on Kojima’s heo y o “ma ginal indus y,”Cai and Liu
(2004) asse ed ha he goal o Chinese in es men in less de eloped coun ies was o
ans e labo -in ensi e indus ies ha would soon lose cos ad an age such as p ocess-
ing manu ac u e, simple assembly p oduc s. They used ime se ies da a o ou wa d
o eign di ec in es men , impo and expo o China om 1990 o 1999 o empi ical
analysis and go he conclusion ha FDI p omo ed expo . Zhang (2005) used he co-
in eg a ion eg ession, e o co ec ion model, and G ange causali y es o es ima e
ime se ies da a o FDI and expo om 1982 o 2002 and go he conclusion ha FDI
p omo ed expo . Zhang (2007) collec ed panel da a o FDI ha China in es ed in 72
coun ies om 2000 o 2004. Wi h he a e aging me hod, he acqui ed a sec ional da a-
se o eg essions and go he conclusion ha FDI p omo e expo wi h he g a i y
Lin China Finance and Economic Re iew (2016) 4:13 Page 3 o 16
model. Xiang (2009) used a panel co-in eg a ion and e o co ec ion model wi h he FDI
da a ha China in es ed in 50 coun ies om 2000 o 2006, and he go he conclusion ha
FDI can signi ican ly p omo e expo : he es ima ed elas ic coe icien is abou 0.9, which
means 1 % inc ease o FDI would lead o 0.9 % inc ease o expo . Chen e al. (2010) used
a single a iable eg ession speci ica ion and use he GLS, ixed e ec , and andom-e ec s
model o he es ima ion using low and s ock da a ha China in es ed in 26 coun ies
om 2003 o 2007 and he go he conclusion ha FDI p omo e expo . In addi ion, la es
li e a u es such as Zhou and Niu (2012). Zhang (2012), Zhang and Huang (2013), Liu and
Xie (2014), and Liu e al. (2014) used la ge samples o hei esea ch. Al hough he e a e
many di e ences in model speci ica ion and es ima ion me hods, hese li e a u es basically
go he same conclusion ha he OFDI o China p omo es i s expo s, despi e some docu-
men ed “coun y he e ogenei y”. I e ain om u he discussions o sa e space.
1
Undoub edly, hese pape s p o ide solid ounda ions o s udying he ade e ec o
OFDI. Howe e , upon e iewing hese exis ing empi ical li e a u es, he e a e a leas
h ee disad an ages.
The selec ion o he OFDI a iable
The da a o OFDI in he cu en li e a u e is mainly om he “s a is ical yea book o
China”and “s a is ical bulle in o Chinese o eign di ec in es men ”. They collec he low
and s ock da a o FDI ha China in es ed in o he coun ies ( egions). The low da a
eco ds he in es men amoun ha China in es s in o wi hd aws om he hos coun y.
Zhang (2007), Chen e al. (2010), Zhang (2012), and Wang e al. (2014) s udied he e ec
o OFDI on ade using low da a. Howe e , i can be seen ha si ua ions ha wi hd aw-
ing o he loss o in es men which lead o he nega i e low OFDI a e no a e. I collec
panel da a o Chinese OFDI om 2003 o 2014 om he s a is ical bulle in o Chinese o -
eign di ec in es men ; among he e ec i e 1636 obse a ions o OFDI, he e a e as many
as 124 obse a ions ha a e nega i e, which accoun s o 7.6 % in he o al sample. I I
ake na u al loga i hm o he low da a, i is ine i able o dele e hese nega i e obse a-
ions o o eplace hem wi h ze oes. The sample selec ion p oblem b ough by his non-
andom censo ing is likely o cause biased esul s.
Ano he p oblem is ha he OFDI low da a and ade da a may show a s ong posi i e
co ela ion due o some shocks caused by exogenous ac o s ha may be di icul o quan-
i y. Fo example, when poli ical leade s o China and hos coun ies signed s a egic co-
ope a ion ag eemen s, bila e al economic and ade coope a ion would be p omo ed in he
ollowing yea s, which leads o bo h apid g ow h o in es men low and ade. On he
con a y, occasional de e io a ion o poli ical ela ions may lead o simul aneous sh inks o
in es men lows and ade. In sho , OFDI and expo ha e he high posi i e co ela ion
due o he exogenous poli ical impac , which makes he OFDI show a ce ain p omo ing
ole in he eg ession wi h he expo as he explana o y a iable. Howe e , he endogenei y
o simul anei y is essen ially due o he unobse able o unquan i iable ac o s. The ela-
ionship is no he ocus o a en ion, so low da a o OFDI is no sui able o esea ch.
In ac , when we s udy he long- e m e ec o p oduc ion and ope a ion b ough by
OFDI, lagged da a o OFDI s ock da a would be he mos easonable choice. Fo example,
Zhou and Niu (2012), Chih-Fan and Dong (2013), Zhang and Huang (2013), Liu and Xie
(2014), and Wang and Xiang (2014) used he cu en s ock da a. Bu since he cu en
Lin China Finance and Economic Re iew (2016) 4:13 Page 4 o 16

s ock da a is calcula ed based on cu en low da a, lagged s ock da a and in es men
p o i . Since i includes in o ma ion conce ning he cu en low da a o OFDI, he p ob-
lem o endogenous bias could no be a oided. In eali y, no ma e OFDI akes he o m
o me ge and acquisi ion, he legal p ocedu e, si e cons uc ion, p ocu emen and ins al-
la ion o p oduc ion equipmen , and ec ui men and aining o p oduc ion pe sonnel all
need o consume a ce ain amoun o ime. Ins ead, lagged da a o OFDI s ock ully
conside ed he equi ed ime lag ha in es men low ans o med in o ac ual p oduc ion
capaci y. The e o e, his pape selec ed he lagged e ms o OFDI s ock as he co e
explana o y a iable in empi ical analysis.
2
The pape also p o ides eg ession esul s
using cu en low da a and s ock da a o compa ison. They a e based on he same se o
sample so he di e ences be ween he conclusions a e solely a ibu able o di e en
selec ions o co e explana o y a iables. Reg ession esul s e eal ha wi h he cu en
low and s ock da a as he explana o y a iables, he es ima ed alue and signi icance o
p omo ing e ec a e o e es ima ed while ha o subs i u ion e ec a e unde es ima ed.
The lag o s ock da a has no p omo ing e ec on expo .
3
The speci ica ion o he empi ical model
Limi ed by da a a ailabili y, ea lie s udies used he agg ega e ime se ies da a wi h he
me hods o co-in eg a ion eg ession, e o co ec ion model (Cai and Liu 2004; Zhang
2005). La e s udies such as Xiang (2009) and Chen e al. (2010) used c oss-coun y
panel da a; bu he idea o co-in eg a ion analysis is s ill ollowed. The p oblem wi h
his kind o model speci ica ion is ha only OFDI is chosen o explaining impo and
expo . The eg ession se ing o “single a iable” ails o ake o he ac o s in o consid-
e a ion. Since China is a la ge coun y wi h apid economic g ow h and ac i ely pa ici-
pa e in he globaliza ion o economic ac i i ies, i s OFDI and expo a e bo h on a
ising end. F om a quan i a i e pe spec i e, lacking con ol a iables in eg essions
will undoub edly each he conclusion ha hese wo a iables a e signi ican ly and
posi i ely co ela ed, which is mos p obably caused by se e e omi ed a iable bias.
Wha is mo e, China only began la ge scale o OFDI a e 2005; be o e hen,
China’s annual OFDI low was less han en billion and he s ock was only ens o
billions, which is di icul o o m an impac on expo wi h illion-dolla -le el in
an economic sense. The e o e, his pape conduc s empi ical analysis wi hin he
amewo k o he g a i y model, which has been he mos popula wo kho se in
he ield o in e na ional ade. I includes he majo ac o s o in e na ional ade
o imp o e he explana o y powe o he model as well as o weaken he impac
o missing a iables. The esul s show ha he maximum elas ici y o OFDI on
expo in he ull sample eg ession is 0.073 while in he subsample is 0.12 a
mos . Taking he huge magni ude gap be ween China OFDI s ock and expo
ade in o conside a ion, he ange o he elas ici y coe icien is mo e easonable
compa ed o hose be ween 0.3 and 0.9 ound in p e ious pape s such as Xiang
(2009), Zhang (2012), and Liu and Xie (2014).
The choice o model es ima ion me hod
The combina ion o c oss-coun y panel da a and he g a i y model has been popula
in la es esea ch (Zhou and Niu 2012; Hu and Qiao 2013; Chih-Fan and Dong 2013;
Lin China Finance and Economic Re iew (2016) 4:13 Page 5 o 16
Zhang and Huang 2013; Wang e al. 2014; Wang and Xiang 2014). The mos
commonly used es ima ion me hod o panel da a is he ixed-e ec s model. I his
me hod was used, ime-in a ian explana o y a iables such as geog aphical dis ance,
whe he he wo coun ies a e bo de s o ha e he common language, would be classi-
ied as indi idual ixed e ec s and a e consequen ly uniden i iable, which is a di icul
p oblem in he g a i y model.
Exis ing li e a u es p o ide h ee possible solu ions: he i s is he pooled OLS o
andom-e ec s model. These me hods a e used o eg ess o ob aining he es ima ed
coe icien s o all a iables, bu pooled OLS gi es up he con ol o indi idual he e o-
genei y, and whe he he andom-e ec s model is sui able is unce ain.
4
Bo h o hem
canno gua an ee he consis ency o es ima ions. The second is he a ying-coe icien
model. This me hod is used by ecen li e a u es and go he conclusion ha some
“coun y he e ogenei y”exis in he e ec o Chinese OFDI on expo ade (Zhang
2012; Liu and Xie 2014). This me hod is gene ally applicable o he long panel da a
(namely ha he annual numbe Tis g ea e han he numbe o indi iduals N). The
Chinese OFDI da a is a ypical sho panel, which indica es ha he me hod is no
sui able. The hi d is he dynamic panel da a model es ima ed using sys em GMM
me hod (Liu e al. 2014). Howe e , wha he dynamic model es ima es is he sho -
e m equilib ium ela ionship bu no he long- e m impac o OFDI on expo s.
Mo eo e , he explana o y a iable o Chinese GDP is missed in he g a i y model o
Liu e al. (2014). Since he OFDI s ock o China is posi i ely co ela ed wi h GDP, he
conclusion ha OFDI has a posi i e e ec on expo ade is likely a “ alse imp es-
sion”caused by omi ed a iable bias.
5
The empi ical analysis in his pape uses mul iple speci ica ions o ob ain obus
conclusions: I use a pooled OLS model and con ol o bila e al GDP, geog aphical
dis ance, lagged OFDI s ock as well as he e ogenei ies ha may in luence ade in
heg a i ymodel.Ialsousea ixed-e ec s model o ob ain a wi hin-g oup consis -
en es ima o , bu I would no be able o ob ain he es ima ed coe icien s o
ime-in a ian a iables such as geog aphical dis ance. Second, in o de o alle ia e
he endogenei y bias in he g a i y model caused by he log-linea ized o da a ha
iola es he condi ions o consis en es ima ion, I use he Poisson pseudo max-
imum likelihood es ima o sugges ed by Sil a and Ten ey o (2006). The esul s
show ha he conclusion in his pape is e y obus .
Me hods
In he ield o in e na ional ade, he g a i y model o iginally p oposed by Tin-
be gen (1962) and de eloped by Ande son (1979), Be gs and (1985) has become
he s anda d pa adigm o empi ical esea ch. Al hough he g a i y model was
i s p oposed as an empi ical equa ion, i has solid heo e ical ounda ions.
Some o m o he g a i y model can be de i ed om he neo-classical in e -
na ional ade heo y based on ac o endowmen s uc u e and compa a i e
ad an age o om he new ade heo y based on monopolis ic compe i ion.
Acco ding o he e iew a icle o Ande son and an Wincoop (2004), a e
in oducing ac o s such as pe capi a income, ade ba ie s, exchange a es, bo de s,
common language dummies, ee ade ag eemen s, and colonial ela ionship in o he
Lin China Finance and Economic Re iew (2016) 4:13 Page 6 o 16
g a i y model, i can explain mo e han 80 % o in e na ional ade lows. I has become
one o he mos success ul empi ical models in economics esea ch.
In his pape , he ade g a i y model is used as an empi ical amewo k o es ima e
he expo e ec o OFDI:
lnEXPi; ¼β1lnGDPCHN; þβ2lnGDPi; þβ3lndis iþβ4lnOFDIs ocki; ‐n
þXθþω þεi; ð1Þ
In he equa ion, Chinese expo o he coun y iEXP is explained by he GDP o
China, he GDP o coun y i, and he geog aphical dis ance, which a e he p oxies o
commodi y supply, demand capaci y, and anspo a ion cos s, espec i ely. They a e
he basic a iables in he g a i y model. The key explana o y a iable is he lagged e m
o OFDI s ock ha China has in es ed in coun y i. As men ioned ea lie , his can a oid
he omi ed bias p oblem o eg ession es ima ion caused by he simul anei y be ween he
OFDI low and ade. A he same ime, he lagged e m o OFDI akes he ime lag o
in es men s o ming ac ual p oduc ion capaci ies in he hos coun y in o conside a ion.
In his pape , I conside he model wi h lag phases o in es men s ock (i.e., n=1,2,3.).
Subsequen eg essions show he esul s wi h he cu en low and cu en s ock as he
co e explana o y a iables, which di ec ly assesses he impac o di e en co e explana o y
a iables on empi ical esul s. O he con ol a iable Xand he ac o s ha cap u e coun-
y he e ogenei ies a e ully con olled, which includes a neighbo ing dummy, a common
language dummy (i.e., he o icial language is Chinese o English
6
), a ee ade ag eemen
(FTA) wi h China dummy, OECD membe coun y dummy, and WTO membe dummy.
In addi ion, con inen dummies (Asia, Eu ope, A ica, No h Ame ica, La in Ame ica,
and Oceania) and law o igin dummies (Anglo-Ame ican Legal Sys em, F ench ci il law,
Ge man law, and No dic law) a e also con olled in he eg essions. Ω is he yea ixed
e ec , which can con ol he collision o global mac oeconomic luc ua ions on China’s
expo o o he coun ies.
In o de o ge a obus empi ical conclusion, based on he mixed eg ession model
(POLS), he dis u bance e m can be decomposed: ε
i,
=μ
i
+
i,
, he empi ical model
can be ew i en as a ixed-e ec s model (FE):
lnEXPi; ¼β1lnGDPCHN; þβ2lnGDPi; þβ3lndis iþβ4lnOFDIs ocki; ‐n
þZγþω þμiþ i; ð2Þ
In he model, all ime-in a ian dummies a e classi ied as coun y ixed e ec s μ
i,
,so
hey a e no longe iden i iable. Bu using he ixed-e ec s model allows me o ob ain
he “wi hin-g oup”consis en es ima o s o o he a iables in he g a i y model. They
can be compa ed wi h he esul s o pooled OLS eg essions o ob ain a obus
conclusion.
The da ase used in his pape is a panel o Chinese OFDI and expo ade om
2003 o 2014. The da a o OFDI is om “The S a is ical Bulle in o Fo eign Di ec
In es men o China”, he da a o expo is om “The China S a is ic Yea book”o a i-
ous yea s. The GDP o China and o he coun ies a e om he wo ld de elopmen
indica o da abase o he Wo ld Bank. O he da a, such as geog aphic dis ance om
China, language, law o igins, and o he coun y cha ac e is ics a e om he CIA Wo ld
Fac book and he F ance In e na ional Economics Resea ch Cen e (CEPII) da abase.
Be o e unning he eg essions, da a was p ocessed as ollows:
Lin China Finance and Economic Re iew (2016) 4:13 Page 7 o 16
(1)Hos coun ies wi h in es men s ock less han $100 million and con inuous
obse a ions less han 5 yea s a e d opped om he sample, which can a oid he
a enua ion bias caused by measu emen e o p oblem.
(2)In es men s o ypical o sho e inancial cen e s, Hong Kong, and Macau a e
dele ed. Basically, hese in es men s se “shell”companies o capi al ans e , ax
a oidance, and e en some o he illegal ac i i ies. E en ually, hese in es men s low
o o he coun ies o e en home, which in ol es no ac ual economic ac i i ies such
as employmen , p oduc ion, and ope a ion in he hos coun y (Wang 2013). They
would ha e no e ec on he expo ade so keeping hese obse a ions would lead
o alse conclusions.
(3)Taking na u al loga i hm o he con inuous a iables. This can elimina e he
p oblem o he e oskedas ici y and ex eme alue o a iables wi h la ge alue, such
as ade, GDP, and geog aphical dis ance. The eg ession coe icien s ob ained by
logged da a on bo h sides o he equa ion can be in e p e ed as he elas ici y
coe icien s, which ha e clea economic meanings.
Wi h he p ocedu es desc ibed abo e, panel da e o 155 coun ies om 2004 o 2014
is acqui ed, which con ains 33 de eloped coun ies, and 122 de eloping coun ies. Fo
he es ima ion me hod o model, Eqs. (1) and (2) a e log-linea ized om he o iginal
o m o g a i y model:
EXPi; ¼αGDPβ1
CHN; GDPβ2
i; dis β3
iOFDIs ockβ4
i; −nXθηi;
Among he a iables, η
i,
is he independen e o e m which sa is ies he condi ion:
E(η
i,
| GDP
CHN,
,GDP
i,
, dis
i
, OFDI s ock
i, −n
,X)=1
We can ob ain:
EEXP
i; GDPjCHN; ;GDPi; ;dis i;OFDIs ocki; −n;X

¼αGDPβ1
CHN; GDPβ2
i; dis β3
i
OFDIs ockβ4
i; −nXθHowe e , a e he log-linea iza ion, we can ge E(1nη
i,
)≠1n E(η
i,
)=
0 acco ding o he Jensen inequali y. The e o e, he e o e m ε
i,
,
i,
in Eqs. (1) and
(2) canno sa is y he classical assump ion o ze o mean. In ac , E(1nη
i,
) depends no
only on E(η
i,
) bu also co ela es wi h highe o de dis ibu ions o η
i,
. I he highe
o de momen s o η
i,
is co ela ed wi h he explana o y a iables, OLS es ima ion
would su e om endogenous bias.
7
The e o e, his pape uses he Poisson pseudo-maximum likelihood es ima ion p o-
posed by Sil a and Ten ey o (2006).
8
Hao and Ma (2012) used he Mon e Ca lo simula-
ions o compa e he esul s o PPML and o he commonly used es ima ion me hods
o he g a i y model (OLS, NLS, Tobi ). They ound ha he es ima ion e o o PPML
is he smalles and he es ima ion o ac o s such as FTA is mo e conse a i e and
p uden compa ed wi h OLS.
Resul s and discussion
The es ima ion esul s o ull sample
Table 1 shows he eg ession esul s o ull sample. Models (1), (2), and (3) show he
esul s o pooled OLS, wi h he one o h ee lag o OFDI as he explana o y a iables
espec i ely. Models (4), (5), and (6) add he indi idual ixed e ec s o he hos
Lin China Finance and Economic Re iew (2016) 4:13 Page 8 o 16
5
Since he da ase used in his pape has a la ge o e lap wi h he sample o Liu e al.
(2014), his conjec u e can be e i ied. Using he same model speci ica ion and he sys em
GMM es ima ion me hod, we ind ha i he a iable o Chinese GDP we e con olled in
he model o ade g a i y, he s ock o OFDI would no be signi ican . I he a iable o
Chinese’s GDP is delibe a ely omi ed, he s ock o OFDI is signi ican ly posi i e and he
es ima ion coe icien s is simila wi h hei esul s. Limi ed by space, he esul is no
shown in he empi ical pa . The empi ical da a and STATA codes a e a ailable om
au ho upon eques .
6
Al hough English is no he o icial language o China, he e a e lo s o Chinese
s udying English, so i has a g ea in luence on China.
7
A his poin , he a iance o he η
i,
: Va (η
i,
)= (GDP
CHN,
, GDP
i,
, dis
i
, OFDI s ock
i,
−n
,X)≠cons an
8
Con ined in his pape , he de ails o PPML me hods a e no shown, eade s can see
he pape o Sil a and Ten ey o (2006), (The Re iew o Economics and S a is ics).
Chinese li e a u e such as Sun Lin and Ni Kaka (2013), Tian Wei e al. (2013) used his
me hod.
9
The in e p e a ion o ixed e ec model is di e en om ha o he pooled OLS
model. The es ima ed coe icien e lec s he wi hin-g oup e ec , which means ha 1 %
inc ease o Chinese OFDI s ock o one speci ic hos coun y con ibu es o se e al
pe cen age inc ease o expo .
10
In Table 1, he coe icien s o Chinese and hos coun y’s GDP a e signi ican ly posi-
i e. The coe icien o geog aphic dis ance is signi ican ly nega i e, which is in line wi h
expec a ion. The signs o o he con ol a iables a e simila wi h he exis ing li e a u e.
Limi ed by he space, his pape does no show he coe icien s and -s a is ic.
11
Cons ained by space limi a ions, he es ima ion o sub-sample does no p o ide
he eg ession esul s ha a e based on he w ong a iable selec ion, model speci ica-
ion, and es ima ion me hod.
Acknowledgemen s
This pape is suppo ed by he Na ional Social Science Fund o China (G an : 15CJL025) and he NSE Special Resea ch
Fund g an ed by he Cen e o New S uc u al Economics o Peking Uni e si y.
Compe ing in e es s
The au ho decla es ha he has no compe ing in e es s.
Recei ed: 12 Augus 2016 Accep ed: 12 Oc obe 2016
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