Decisions of OFDI Engagement and Location for Heterogeneous Multinational firms: Evidence from Chinese firms

- The TFP of a firm engaging OFDI is significantly larger than those not.
- The firm's TFP significantly increases its OFDI intention.
- The influence of the firm's TFP is consistent for SOEs and non-SOEs.
- The host country's market potential's effect reduces with an increase in firm's TFP.

This paper explores how multinational firm take decisions with regard to outward FDI (OFDI) depending on total factor productivity (TFP). In particular, we examine how the TFP of an individual firm interacts with the host country's factors, and its indirect impact on the location decision. An annual data set from 2008 to 2013 for publicly listed multinational firms in China is examined. The empirical results suggest that, first, the TFP could stimulate the OFDI engagement of a firm. Second, the influence of the firm's TFP is consistent across firms with different institutional advantages. Third, the firm's TFP reduces the importance of the host country's market potential on the likelihood of the firm's entry into a host country.