Title: Foreign direct investment vs. portfolio investment: evidence from China

Authors: Hyo Eun Cho; Jon Jungbien Moon

Addresses: Korea University Business School, Korea University, 145 Anamro, Seongbuk-gu, Seoul 136-701, South Korea ' Korea University Business School, Korea University, 145 Anamro, Seongbuk-gu, Seoul 136-701, South Korea

Abstract: Does foreign direct investment lead to higher performance? We address this long-standing question by using a novel research design. Using detailed panel data from China, we compare firms with foreign direct investment to firms with foreign portfolio investment within the narrow band around a threshold level of foreign direct investment designation. We find empirical evidence that firms with foreign direct investment outperform firms with portfolio investment. This is accomplished via more efficient production, more investment in research and development, more investment in physical capital, and more focus on the host market. We do not, however, find evidence that foreign direct investment firms introduce more new products or benefit from higher labour productivity.

Keywords: foreign direct investment; FDI; portfolio investment; financial performance; China.

DOI: 10.1504/IJMCS.2018.100603

International Journal of Multinational Corporation Strategy, 2018 Vol.2 No.3/4, pp.193 - 217

Received: 20 Sep 2017
Accepted: 02 Mar 2018

Published online: 03 Jul 2019 *

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