Investment liberalisation, technology take-off and export markets entry: Does foreign ownership structure matter?

Sourafel Girma, Yundan Gong, Holger Görg and Sandra Lancheros

In the run up to its accession to the WTO in 2001, China has undergone far-reaching investment liberalisation. 

In this Nottingham School of Economics working paper, published in the Journal of Economic Behavior & Organization, Sourafel Girma and co-authors exploit the fact that as part of this investment liberalisation process, existing restrictions on foreign ownership structure and mandatory export and technology transfer requirements imposed on foreign firms had been lifted in a number of industries, to identify the causal effects of foreign acquisitions on export markets entry and technology take-off. This is done by using a comprehensive firm level database covering enterprises in the Chinese manufacturing sector which allows the authors to identify the sub-population of firms with no exports, R&D and FDI before China joined the WTO in 2001. Some of these firms are subsequently partly or wholly acquired by foreign MNEs courtesy of investment liberalisation entailed by WTO entry, and the authors are able to trace the exporting and R&D transitions of individual firms between the pre- and post-liberalisation periods.

Using doubly robust propensity score reweighted bivariate probit regressions to control for selection bias associated with foreign acquisition incidences, the paper uncovers strong but heterogeneous positive effects on export activity for all types of foreign ownership structure. The authors also find that minority foreign acquisition targets experience higher likelihood of R&D. From policy makers’ perspectives, the results provide solid evidence that joint ventures between foreign owners and Chinese firms can contribute positively to China’s “science and technology take-off”. 

Forthcoming Journal of Economic Behavior & Organization, “Investment liberalisation, technology take-off and export markets entry: Does foreign ownership structure matter?”, by Sourafel Girma, Yundan Gong, Holger Görg and Sandra Lancheros

http://dx.doi.org/10.1016/j.jebo.2015.04.008

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