Sustainable FDI and comparative advantage for product export survival: a developing countries perspective

Abstract

Establishing stable export relations is significant for developing countries to realize industrialization through exporting manufactured products. Based on the export data of 100 developing countries on the product level from 1999 to 2015, this paper empirically explores the relationship between FDI and product export survival of the host country using the survival analysis model. The estimations show that FDI is conducive to the extension of the export duration of domestic products, and this effect is more evident in products with comparative advantages. Mechanism inspections prove that FDIs extend the export duration of products by improving their quality. To overcome endogenous problems, this paper establishes instrumental variables of FDI based on population and geographical factors. The results of the two-stage least square regression support the conclusions derived from the benchmark regression. This paper provides new empirical evidence for the role of FDI in export promotion and resource allocation.

Keywords:

• FDI
• comparative advantage
• export survival
• resource misallocation
• developing countries

JEL CODES:

• F40; P51; O11; F14

Disclosure statement

No potential conflict of interest was reported by the authors.

Source of data

Data source is provided into the manuscript.

All the authors have agreed to submit the manuscript.

Data availability

Datasets are available at request from the corresponding author.

Notes

1 A research report published by the Inter-American Development Bank (IDB, 2007), cited many products of Latin American countries that cannot maintain sustainable exports.

2 The longer the export survival of a country’s product is, the more resources are invested in that product. Jaud et al. (2018) found that financial development can improve the export survival of industries with comparative advantage.

3 A catch-up strategy of developing countries.

4 A country-product level also includes control variables at the country and firm level.

5 Refer to Human Capital in PWT 9.0

6 Refer to the calculation of ${\kappa }_{c{t}_0}$ and ${ h}_{c{t}_0}.$

7 The proportion of raw materials is considered. Besides, the industry standard in the original data is SIC 1987, which we correspond with ISIC Rev. 2 And the ISIC Rev. 2 finally adopts the mean value of corresponding indexes of SIC 1987.

8 The survival function here is a Kaplan-Meier estimate.

9 The material and human capital density indexes are absorbed by the stratification variable HS 6-digit industry.

10 In these countries, the extractive industries accounted for more than 60% on average in the export in 2000-2015, the data is from the WDI database.

11 We set the Winsorzing thresholds at 1% and 99%.

12 During analysis, we deleted the observation value of 5% of the products whose distance to comparative advantage changed more in the last year of export survival compared with the initial year.

13 ${\mathit{stquality}}_{\mathit{ikjt}}=\raisebox{1ex}{${\mathit{quality}}_{\mathit{ikjt}}-{\mathit{MAXquality}}_{kt}$}\!\left/ \!\raisebox{-1ex}{${\mathit{MAXquality}}_{kt}-{\mathit{MINquality}}_{kt}$}\right.,$ where ${\mathit{MAXquality}}_{kt}$ and ${\mathit{MINquality}}_{kt}$ represents the highest and lowest product quality of product k in year t respectively.

14 From the coefficients in Column (2), it is clear that the quality of products with a distance to comparative advantage greater than 1.92 (1.92 =.0007192 /.0003737, close to 90% quantile) will decline under a given FDI stock.

15 The reason that bilateral FDI flow data is selected as the explanatory variable of the gravity model is that the gravity model explains the flow data to a higher degree, such as bilateral trade volume.

16 See the appendix for detailed estimation strategy and results.

17 See the appendix for the reasons for the significant estimation coefficient.

18 Data source: http://www.cepii.fr/CEPII/en/bdd_modele/presentation.asp?id=4

Additional information

Funding

This work was sponsored in part by Philosophy and Social Science Planning Project of Zhejiang Province (23NDJC241YB).