China & World Economy / 1–28, Vol. 28, No. 3, 2020

Chinese Outward Foreign Direct Investment and Industrial Upgrading
from the Perspective of Differences among Countries

Hao Chen, Jiadong Pan, Wen Xiao

Abstract

This paper constructs a two-sector model to identify the effects of outward foreign direct investment (OFDI) in different countries on China’s industrial upgrading and conducts an empirical analysis using provincial-level panel data from 2003–2015. The results show that China can benefit from industrial upgrading via OFDI in developed countries by way of reverse technology spillover. This effect is significant in the eastern region, but not in the central and western regions. China can also benefit from industrial upgrading via OFDI in developing countries and countries along the Belt and Road through marginal industrial transfer. This effect is more significant in the central region, followed by the western and eastern regions. Our results imply that China should promote technology-seeking OFDI in developed countries, and enhance efficiency-seeking OFDI in developing countries, especially in countries along the Belt and Road.