The nexus between outward foreign direct investment and export sophistication: new evidence from China

ABSTRACT

This article investigates the bidirectional causal relationship between outbound foreign direct investment (ODI) and export sophistication in China by using autoregressive distributed lag (ARDL) techniques. The findings detect cointegration and bidirectional causal relationship between export sophistication and ODI. The empirical evidence supports that ODI strongly promotes export sophistication and export sophistication weakly encourages Chinese ODI to go out global. The nexus between ODI and export sophistication is good news for China to enhance the quality of exports and catch-up on developed economies. The control variables of trade openness, human capital and quality of institutions improve the strength of cointegration between ODI and export sophistication and play a significant role in promoting the two variables of our interest.

KEYWORDS:

• Export sophistication
• ODI
• China
• ARDL

JEL CLASSIFICATION:

• F21
• C22
• F14
• A10
• A11
• A12

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Ministry of Commerce of the People’s Republic of China (MOFCOM) (2015).

² (V_i – V_min)/(V_max – V_min) formula is applied for the normalization. Now, (V_i) original index and (V_min) is the minimum value attained by country in original index.

³ Narayan (2005) argued that critical values narrated in Pesaran, Shin, and Smith (2001) are applicable for large sample; they are not suitable for small sample. He assessed a set of critical values for small sample sizes ranging from 30 to 80 observations. The present study uses the values of Narayan (2005).

Additional information

Funding

This research work was supported by the National Social Science Fund of China under Grant number [17JJD790007].