Distribution, outward FDI, and productivity heterogeneity: China and cross-countries' evidence

This paper examines distribution-oriented outward FDI using Chinese multinational firm-level data. Distribution outward FDI refers to Chinese parent firms in manufacturing that penetrate foreign markets through wholesale trade affiliates that resell exportable goods. Our estimations correct for rare-events bias and show that distribution FDI are more productive than non-FDI firms but less productive than non-distribution FDI firms. As cross-border communications costs (transportation costs) increase, there is a higher the probability that firms engage in distribution FDI (non-distribution FDI). Our endogenous income-threshold estimates show that high-productivity Chinese firms invest more in high-income countries, but not necessarily in low-income countries. (C) 2020 Elsevier B.V. All rights reserved.