Do Chinese foreign investment enterprises have higher markup: empirical evidence from manufacturing enterprises

QIU Licheng1,2 LIU Canlei2,3 YANG Debin2,3

(1.Tianjin University of Commerce)
(2.Nankai Institute of International Economics)
(3.Collaborative Innovation Center for China Economy)

【Abstract】Although lots of research have confirmed the self-selection effect in the foreign investment market with the firm productivity, they all ignored the importance of product pricing. Therefore, based on the enterprises’ markup ratio, this article combines production efficiency and product pricing ability into a unified analysis index to provide a comprehensive test about the “self-selection effect” of Chinese foreign investment market, and further investigates its productivity advantages and product pricing advantage. We find that foreign investment enterprises always have higher markups than non-foreign investment enterprises and the higher markup corresponding to larger investment scale. In addition to the productivity efficiency, further study finds that product pricing also plays an important role in the decision of foreign investment.

【Keywords】 firm heterogeneity; foreign investment; cost markup ratio;

【DOI】

【Funds】 Key research project of Humanities and Social Sciences Key Research Base of the Ministry of Education of 2013 (13JJD790016) Nankai University Collaborative Innovation Center for China Economy, Projects of Nankai University Doctoral Research and Innovation Fund and the Nankai University Asian Studies Center Project (AS1517)

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    Footnote

    [1]. ① Ministry of Commerce of the People’s Republic of China: 2014 Statistical Bulletin of China’s Outward Foreign Direct Investment, China Statistical Press, September 2015 edition. [^Back]

    [2]. ② There is a serious endogeneity problem in estimating the regression of Model (6) directly. Therefore, De-Loecker and Warzynski (2012) mainly used the nonparametric estimation method to calculate the input-output coefficient of each factor. [^Back]

    [3]. ③ In the period of 2005–2013, the proportion of state-owned enterprises in China’s foreign investment was 81.8%, 81%, 71%, 69.6%, 69.2%, 66.2%, 62.7%, 59.8% and 55.2% respectively. Statistical Bulletin on China’s Foreign Direct Investment. [^Back]

    [4]. ④ Based on the name of enterprises, we reached 114 matched companies. For the data that no enterprise name matches, we used the enterprise zip code, legal person name and date of business set up to match, with a result of 130 enterprises in total. [^Back]

    [5]. ⑤ By controlling the productivity of enterprises in the regression model, De Loecker and Warzynski (2012) indirectly identify the impact of enterprise product prices. The implied premise is that the marginal cost of production depends entirely on corporate productivity. However, the productivity of enterprises will also affect the product price of enterprises; therefore, after controlling enterprise productivity, if the regression results are still significantly positive, it indicates China’s foreign investment enterprises have a higher product pricing advantage. [^Back]

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This Article

ISSN:1002-4670

CN: 11-1692/F

Vol , No. 12, Pages 3-15

December 2016

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Article Outline

Abstract

  • Introduction
  • 1 Index establishment and data description
  • 2 Empirical analysis
  • 3 Further empirical analysis
  • 4 Conclusions and revelation
  • Footnote

    References