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World Economy - 2022 - Anwar - Foreign direct investment and product quality in host economies971.44 kB
Published VersionCC BY-NC-ND V4.0, Open Access
Journal article
Foreign direct investment and product quality in host economies
The World Economy, Vol.46(5), pp.1290-1318
2023
Appears in UniSC Supported Open Access Outputs
Abstract
We examine, both theoretically and empirically, how the presence of FDI affects product quality of domestic firms through worker mobility. Mobility of more productive workers from foreign-invested to domestic firms lowers the cost of production and contributes to improvement in the quality of goods produced by domestic firms. Profit maximisation by firms yields a structural relationship between unobserved product quality and observed revenue, which allows us to identify the impact of FDI on product quality. We use the theoretical model to frame empirical estimation, where we propose a novel approach to correct for sample selection bias. Under some mild assumptions, a set of population moments are derived and estimated using firm-level data from China's beverage manufacturing industry. We find that, on average, (i) working for foreign-invested firms boosts the skill level of workers by 11.12 per cent and (ii) the probability that an FDI-trained worker will move to a domestic firm is approximately 0.3. Estimation of the structural parameters shows that a one per cent increase in FDI leads to approximately 1.4 per cent improvement in product quality of domestic firms in China's beverage manufacturing industry.
Details
- Title
- Foreign direct investment and product quality in host economies
- Authors
- Sajid Anwar (Corresponding Author) - University of the Sunshine Coast, Queensland, Indigenous and Transcultural Research Centre - LegacySizhong Sun (Author) - James Cook University
- Publication details
- The World Economy, Vol.46(5), pp.1290-1318
- Publisher
- Wiley-Blackwell Publishing Ltd.
- Date published
- 2023
- DOI
- 10.1111/twec.13321
- ISSN
- 1467-9701; 0378-5920
- Copyright note
- This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.© 2022 The Authors. The World Economy published by John Wiley & Sons Ltd.
- Organisation Unit
- School of Business and Creative Industries; Indigenous and Transcultural Research Centre; University of the Sunshine Coast, Queensland
- Language
- English
- Record Identifier
- 99666997102621
- Output Type
- Journal article
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