China & World Economy / 1–21, Vol. 26, No. 3, 2018

Impact of China’s Outward Foreign Direct Investment
on Its Regional Economic Growth

Chunlai Chen*

Abstract

This paper investigates the impact of China’s outward foreign direct investment (OFDI) on its economic growth. By using a provincial-level panel dataset and applying fixed-effects and instrumental variable regression techniques, the study finds that both OFDI from provincial firms and OFDI from state-owned enterprises have a positive impact on China’s provincial economic growth. The positive impact of OFDI on provincial economic growth may be the result of reverse knowledge spillovers from OFDI to the home provincial economy through demonstration and imitation, labor movement, and backward and forward industrial linkages, thus increasing the productivity and the efficiency of home firms and promoting the growth of the home economy.

Key words: economic growth, fixed effects and instrumental variables, knowledge spillovers, outward foreign direct investment
JEL codes: F21, F62, O40, R11