Outward FDI and Efficiency in Within-Firm Resource Allocation - Evidence from Firm-Level Data of China

Abstract With the rapid expansion of outward foreign direct investment (OFDI) in China over the last two decades, OFDI has become an increasingly important way of internationalization for firms. This paper documents how firms’ OFDI and its different patterns may affect their internal resource allocation efficiency by adopting PSM-DID method and using firm-level data of China. Our results show that China's OFDI significantly improves the overall efficiency of resource allocation within enterprises, which has a time lag effect. Furthermore, we find that different patterns of firms’ OFDI display significant heterogeneity in their performances. All results remain robust when we replace key variables with different indexes, change the matching method, recalculate parameter, and change the sample size. The key implication of the paper is that both the value and the pattern of OFDI of Chinese enterprises do have significant influences on its internal resource allocation.