The impact of administrative simplification on outward foreign direct investment: Evidence from a quasi-natural experiment in China

ABSTRACT

Using firm-level data from China from 2007 and 2014, this study assesses the impact of administrative simplification on the performance of an outward foreign direct investment. Results estimated by the difference-in-difference method indicate that the administrative simplification has a positive impact on OFDI. The delegation of approval authority can promote the growth of firms’ OFDI in China. This result is robust after addressing the concerns of the endogeneity and sample selection bias. Moreover, results of extension studies show that the growth of OFDI contributed by administrative simplification plays a negative role in firms’ export performance. Finally, the policy effect of administrative simplification on OFDI is stronger for non-SOEs than SOEs.

KEYWORDS:

• Administrative simplification
• OFDI
• quasi-natural experiment
• China

JEL CLASSIFICATIONS:

• F02
• F10

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2460

2 http://finance.sina.com.cn/stock/stockzmt/2020-04-01/doc-iimxxsth2948464.shtm

3 The measures this notice stipulates include (1) The provincial DRC entrusts the municipal DRC to approve the overseas investment projects of resources with the amount of Chinese investment less than $30 million and the overseas investment projects of non-resources with the amount of Chinese investment less than US $10 million; (2) When an enterprise applies to the municipal DRC where it is registered for approval of small overseas investment projects, it only needs to submit the application form for small overseas investment projects; (3) The municipal DRC should register within 5 working days after receiving the application form for small overseas investment projects, and issue the approval form.

4 Given the new accounting standards have been formally implemented Since January 1, 2007, and the Administrative Measures for the Approval and Registration of Foreign Investment Projects have been promulgated in 2014, we constraint the sample period between 2008 and 2014 to eliminate noisy factors.

5 http://www.gtafe.com/ContentShow/TeacherDetail/11?templateId=1

6 In 1998, Shanghai and Shenzhen Stock Exchanges in China implemented a new stock listing rule that they would give special treatment (ST) or delisting risk warning (* ST) to the stocks of the listed companies with abnormal financial conditions or other abnormal conditions in order to indicate the risk of the stock.

7 The reason why we dropping the sample of financial enterprises is that we in this paper only consider the foreign direct investment.

8 According to the ‘Catalogue of Sensitive Industries for Overseas Investment’ issued by the NDRC On February 11, 2018, Overseas investments on these industries listed in the catalogue that are defined as ‘sensitive’, shall be subject to the NDRC approval.

Additional information

Funding

This work was supported by National Natural Science Foundation of China [grant number 71663003].