The Impact Of State Of Regional Producer Services On Outward Foreign Direct Investment Decisions Of Firms In China

Since the implementation of the "Going Out" Strategy, the outward foreign direct investment flow and stock of Chinese enterprises are growing rapidly. At the same time, the added value share of China’s producer services in GDP is also increasing year by year. In order to explore the relationship between the development level of China’s producer services and the rapid growth of outward FDI volume of Chinese firms, this paper combines the Labor Division Theory, the Value Chain Theory, the Neoclassical Growth Theory and the Industrial Agglomeration Theory to analyze the mechanism of producer services acting on firms’ outward FDI. On the basis of the model of Helpman, Melitz and Yeaple(2004), this paper establishes a mathematical model, in which the producer service industries influence the firms’productivity and scale firstly, and then have effect on the outward FDI activities of enterprises. This model proves the rationality of the above mechanism.In the empirical part, our data covers more than 880 thousands Chinese industrial enterprises over the period 2005-2007. The added value shares in each province’s GDP of the financial services, the transportation, storage and postal services, the information services, the technology services and the business services which embrace the wholesale and retail service, are viewed as the explanatory variables. However, the dummy variable that a firm does foreign direct investment or not, is viewed as the dependent variable. This paper investigates regional producer services’ effect on the companies’ OFDI decisions, and researches the role of productivity and firm size which are intervening variables.After controlling for possible endogeneity problems, this paper studies with theProbit Probability Model and finds the following several results. They are:(1)The more developed regional financial services industry is, the smaller financing cost of OFDI is, and then the greater the probability of local enterprises for OFDI is. (2) The more developed regional transportation, warehousing and postal services industry is, the lower transportation cost of domestic sales and export is, the advantage of export and OFDI respectively increases and shrinks, then the likelihood of local enterprises to make a decision of OFDI lowers. (3)The more developed regional information services industry is, the more quickly and cheaply the firm can get the advanced information, the more easily firm’s productivity and international competitiveness can be improved, and then the likelihood of enterprises to invest abroad is greater. (4)The more developed regional technology services industry is, the stronger enterprise’s learning ability, technological innovation ability, productivity and international competitiveness are, and then local enterprises are more likely to invest abroad. (5) When regional business services industry including the wholesale and retail services is developed, a firm will face lower business services cost and investment risk when investing overseas, and then it may do more OFDI activities. (6)Firms with higher productivity, greater asset and workforce, better export performance are more likely to invest overseas. (7)The higher the regional dependence on foreign trade is, the clearer regional export advantage is, and then local companies are less likely to make a decision of OFDI. (8)The higher the level of OFDI and utilization of foreign capital, the easier local enterprises are to establish overseas relationship and grasp market changes abroad, and then the more likely to invest overseas.Finally, for purpose of further promoting China’s firms to invest overseas, this paper actively responds to the "sound service system" mean, which comes forward on the "Fifteen Plan". We integrate the empirical results with the existing problems in producer service industries, and put forward some policy recommendations for improving the status of producer services and thus enhancing the multinational enterprises’international competitiveness and international investment levels, from the perspective of the positioning of producer service industries, personnel training, product diversification, service standardization construction, coordinated development among industries and industrial agglomeration.