Analysis On Enterprise Productivity And Foreign Direct Investment

The purposes of international trade theories are to explain the foundation and effect of trade, and their interaction with economic development. These theories reveal the cause and effectiveness of trade activities at macro level, but there is a common implicit assumption--firms are homogenous, which means all firms are the same and represented by a "representative" firm. Therefore, the internal characteristics of different firms are ignored. However, researches during the past ten years have proved that firms are heterogeneous. For example, the productivity of each firm is different from others. Empirical studies have generally shown that firm heterogeneity is closely connected to its international operations. As a result, this paper is going to explore how heterogeneity affects firm’s foreign direct investment behavior based on the framework of Heterogeneous-Firms Trade Theory.This paper firstly reviewed the literature of Heterogeneous-Firms Trade Theory, analyzing the contents of assumptions and theoretical framework of Heterogeneous-Firms Trade Theory, which laid the theoretical foundation of this paper. Furthermore, the paper concluded and systematically analyzed the correlation of heterogeneity in firm productivity with export and Foreign Direct Investment from different countries. Related studies focus on test whether the heterogeneous firms have self-selection effect and learning effect, but the conclusion is not consistent. Thus, put forward corresponding empirical assumptions for the study of this paper.Secondly, combined with the current situation and characteristics of Shanghai and Guangdong Foreign Direct Investment, this paper further explored the relationship between firm productivity and Foreign Direct Investment. By studying on these two typical areas, it provides certain referential significance for Chinese enterprises to engage in foreign direct investment in the future.Thirdly, after proving that the productivity of FDI enterprises is higher than the export enterprises by using the data from listed manufacturing companies in Shanghai and Guangdong, this paper emphasized on analyzing whether self-selection effectiveness and learning effectiveness exist in FDI enterprises. That is to say, whether enterprises already have higher productivity before conducting FDI activities, and whether doing FDI can help enterprises improve their productivity.Finally, based on the empirical results, this paper came to the definitive conclusions that there is a strong relationship between firm productivity and Foreign Direct Investment and made specific policy proposals on the strategy of how China’s enterprises should "go abroad". The enterprises should choose the internationalization path according to the condition of their own productivity. If the productivity is really high, then the enterprises should actively engage in Foreign Direct Investment; if not, they should first export or sale in domestic market. At the mean time, the government should take appropriate measures to encourage and assist qualified enterprises to go abroad, for doing FDI can help the enterprises improve their productivity.