The Impact Of ODI On Industrial Upgrading Of The Home Country

At present, China has become the world’s second largest economy, with the "Going-out Development Strategy" carrying out and the condition of outward direct investment (ODI) becoming mature, the positive impact of ODI on economic development function is gradually revealed. ODI also has positive impact on China’s industrial upgrading. This paper theoretically and empirically examines the historical evidence from the United States and Japan, which sheds lights on the ODI in China.The paper is composed of five parts. The first part introduces the research background, research Framework, innovation and difficulties. The second part summarizes the existing theoretical and empirical studies. The third part studies evidence from the United States and Japan, including path analysis and empirical tests. The fourth part is to apply the theories and evidence to China. The fifth part concludes and presents some policy suggestions.With evidence from the US and Japan, the paper finds that ODI has positive impact on industrial upgrading. In the process of upgrading, ODI follows an order as follows:resource seeking ODI, market seeking ODI. efficiency ODI and strategic assets seeking ODI.The effects of the four types of ODI are different. Resource seeking promotes capital goods development more quickly than the consumer industry development, and boosts industrialization (measured by the index of Huffman coefficient). Market seeking promotes the development of manufactures. Efficiency seeking improves labor productivity. Strategic-assets seeking enhance the high technology sectors. Using industrial-level data, results from SUR regressions and VAR models show that ODI helps industrial upgrading of the industries such as mining, durable goods and construction in the primary stage. It also helps the outward transfer of light industries. In the United States, it has promoted the rapid development of the information industry, the financial sector, real estate and the technology. In contrast, because Japan was relatively backward in research, after the traditional industry transferred, new high technology industries did not benefit. Thus, ODI caused Japan "industry hollowing" in the1990s.China is a transitional economy. While learning from the evidence in developed countries, it needs to consider its own economic features. Because the experience of China’s ODI is limited and is intervened by the government, different types of ODI are not in order but coexist. Efficiency seeking and strategic assets ability increase quickly with resource seeking and market seeking. Correspondingly, China focused on heavy industries in the beginning and high technology industries after2000. In sum, the adjustment and upgrading of these industries are contemporaneous, which makes industrial upgrading leap forward.