No. 2022001
January 2022
Wei Tian, Miaojie Yu
Abstract
This paper examines the impact of exchange rate movements on firm outward direct investment (ODI), accounting for the heterogeneous effects between distribution and production ODI. Overall, home currency depreciation tends to increase ODI due, in large part, to the growing emergence of distribution ODI, as predicted by the theoretical model. Using rich Chinese firm-level ODI decision data over 2000 to 2008, intensive empirical analysis shows strong support for the models prediction of a complementary relationship between distribution ODI and exports. In response to home currency depreciation, Chinese firms setup more distribution trade affiliates to promote exports. The results are robust to different econometric methodologies, empirical specifications, and time spans.
Keywords: Outward Direct Investment, Exchange Rate, Distribution
JEL: F2 , F3 , L8
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Exchange Rate, Distribution, and Outward Foreign Direct Investment.pdf