Does the Host Country’s Foreign Direct Investment (FDI) Restrictiveness Inhibit the Export Sophistication of the Home Country? Evidence from China’s Manufacturing Data

Abstract

Since the going-global approach of Chinese enterprises has accelerated, the host country’s foreign direct investments (FDI) restrictiveness index has dramatically influenced the upgrading of China’s trade structure. This study investigates the relationship between the host country’s FDI restrictiveness index and the export sophistication of the home country. Using two-way fixed-impact models and firm-based microcosmic data, it verifies the impacts of reverse technology spillover (RTS) by the intermediary model. The empirical outcomes illustrate that the host country’s FDI restrictiveness index significantly inhibits the export sophistication of the home country. In particular, overseas equity restrictions, selection and endorsement requirements, and additional operational limitations hold more substantial influence. However, the limits on key foreign experts have promoted the export sophistication of the home country. Seemingly, host countries’ FDI restrictiveness has inhibited export sophistication in the textile industry and the processing of the resource industry but promoted the same in the mechanical and electronic industries. Likewise, the host country’s FDI restrictiveness impacts the export sophistication of the home nation through resource allocation. Manufacturing enterprises increased export sophistication by guiding resource allocation, and export trade models were changed from the previous quantitative competition to quality competition.