How Does Capital Intensity Affect the Relationship between Outward FDI and Productivity? Micro-evidence from Chinese Manufacturing Firms

Based on outward foreign direct investment (OFDI) data of Chinese manufacturing companies in the period of 2001-2016, this paper examines the impact of capital intensity on the casual relationship between OFDI and productivity. Results show that, first, the pre-entry productivity of OFDI firms is higher than that of non-OFDI firms only for labor-intensive firms but not for capital-intensive firms, which suggests the self-selection effect only holds for labor-intensive firms. Second, the post-entry productivity improvement of OFDI firms only gained by capital-intensive firms but not by labor-intensive OFDI firms, which suggests the learning-by-doing effect only holds for capital-intensive firms. One possible explanation for these results is that the OFDI purpose of capital-intensive firms is to achieve technical progress while the OFDI purpose of labor-intensive firms is to gain profits.