Interrelationship among foreign presence, domestic sales and export intensity in Chinese manufacturing industries

ABSTRACT

Using panel data on six Chinese manufacturing industries over the period 2005–2007, this article explores the interrelationship among foreign presence, domestic sales and export intensity of local firms. We find that the domestic sales and exports are complementary for local firms in China’s pharmaceutical industry, whereas in the case of the textile, transportation equipment, beverage, communication equipment and general equipment manufacturing industries, domestic sales and exports are substitutes. An increase in the average domestic sales increases foreign presence in all industries. The same applies to an increase in the average export intensity. An increase in the level of competition in China’s textile industry increases the export intensity as well as domestic sales of local textile firms. However, an increase in the level of competition in the pharmaceutical industry leads to a very large decrease in export intensity of local pharmaceutical firms. In the case of China’s transportation equipment manufacturing industry, an increase in the level of competition decreases domestic sales of local firms. Furthermore, an increase in the firm size increases domestic sales of Chinese firms in all six manufacturing industries.

KEYWORDS:

• FDI-related spillovers
• export intensity
• domestic sales
• China
• GMM

JEL CLASSIFICATION:

• F21
• F23
• L25

Acknowledgements

This article has greatly benefitted from helpful comments and suggestions from several colleagues. We are particularly grateful to Robert Alexander and two anonymous reviewers of Applied Economics for very helpful comments and suggestions. However, the authors are responsible for all remaining errors and imperfections.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ For example see Chen, Sheng, and Findlay (2013), Anwar and Nguyen (2014), Anwar and Sun (2014) and references therein.

² The choice of these industry groups is dictated by data availability.

³ Within the context of this article, foreign presence is a measure of the spillover effect arising from FDI.

⁴ A good review of empirical studies that deal with the impact of FDI on firm productivity can be found in Meyer and Sinani (2009). Wagner (2007) includes a comprehensive review of studies that deal with the impact of FDI on firm export behaviour. Sun (2009) examined the presence of FDI-related export spillovers in China.

⁵ A good review of some studies on China can also be found in Table 1 of Hale and Long (2011). For a review of the broader literature, see for example, Blomstrom and Kokko (1998), Saggi (2002), Görg and Greenaway (2004), Wagner (2007), Meyer and Sinani (2009) and Bodman and Le (2013).

⁶ Other related studies include Alvarez and Claro (2007), Hausmann, Hwang, and Rodrik (2007) and Blonigen and Ma (2010).

⁷ As indicated earlier, we focus on foreign presence because it measures the spillover effect of FDI.

⁸ In order to control for endogeneity within the context of a single equation model, Wei et al. (2012) have used one period lag of several variables including FDI. In this article, we use a three-equation model, which allows three variables to be endogenous.

⁹ As the export intensity of some firms included in our sample is zero, it is not feasible to use logarithm of export intensity.

¹⁰ A decrease in the value of Herfindahl index represents an increase in market competition.

¹¹ An interesting analysis of some of these issues can be found in (among others) Tang, Zhang, and Haider (2015) and Zhang and Gangopadhyay (2012, 2015).