The impact of trade barriers on outward foreign direct investment: Evidence from Chinese manufacturing firms

Abstract

AbstractIn recent years, escalating trade frictions and the surge in “anti‐globalization” sentiments have caught global attention. It is well‐understood that excessive trade barriers can hinder international trade and economic interactions. Our research, utilizing a mixed logit model, discerns the impact of these barriers on outward foreign direct investment (OFDI). Findings reveal trade barriers notably enhance OFDI activities among Chinese manufacturing firms, especially those receiving subsidies or trading with developing nations. Key mechanisms include the export substitution effect, investment market diversification, and profit‐driven effects. The study also underscores that tariff barriers more significantly affect capital‐intensive and foreign‐funded firms, whereas non‐tariff barriers influence technology‐intensive enterprises more. This research offers fresh insights into OFDI in manufacturing and evaluates the economic repercussions of trade barriers.