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The Impact of Chinese Enterprises' Foreign Direct Investment on Their Total Factor Productivity—An Systematic Analysis Based on PSM-DID Model

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DOI: 10.23977/EMCG2020.007

Author(s)

Minghan Fu, Yiming Chen

Corresponding Author

Minghan Fu

ABSTRACT

Although many evidences show that Transnational Company (TNCs) and Chinese companies have higher total factor productivity in foreign investment, no evidence to prove that foreign direct investment can promote the increase in total factor productivity of enterprises if they cannot eliminate their own selection effects. In order to eliminate the influence of the enterprise's self-selection effect, this paper uses the PSM-DID method to analyze the data of China's foreign direct investment enterprises since 2005. PSM-DID model would be used in this study to find the control group for the enterprises that started FDI in 2005, and then calculates the total factor productivity. Finally, it is concluded that Chinese enterprises' foreign direct investment (FDI) can significantly promote the increase of their total factor productivity. After getting the conclusion, the placebo test was carried out, and the test results showed that the model was relatively robust, so the conclusion was persuasive.

KEYWORDS

FDI, TFP, PSM-DID, PLACEBO TEST

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