Working Paper: NBER ID: w16294
Authors: Yasheng Huang; Li Jin; Yi Qian
Abstract: Most of the economic analyses of the overseas-Chinese network focus on trade and investment flows at the country level. In this paper, we analyze the effects of the ethnic Chinese network at the firm level. Contrary to the conventional wisdom, we find that ethnic-Chinese FDI firms in China in fact underperform non-ethnic-Chinese FDI firms. We also find that the performance of ethnic-Chinese firms deteriorates over time. We present evidence consistent with the hypothesis that ethnic-Chinese firms under-invest in those firm attributes that may enhance long-term performance, such as human capital and technology. Our findings raise both empirical and normative implications of ethnic ties.
Keywords: ethnic ties; foreign direct investment; firm performance
JEL Codes: F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Ethnic-Chinese FDI firms (F23) | Underinvestment in critical attributes such as human capital and technology (D29) |
| Ethnic-Chinese FDI firms (F23) | Selection biases in investment decisions due to favoring ancestral ties (G41) |
| Matching on technology and human capital (J24) | No dynamic disadvantage of ethnic-Chinese FDI firms compared to non-ethnic-Chinese firms (F23) |
| Ethnic-Chinese FDI firms (F23) | Underperformance relative to non-ethnic-Chinese FDI firms (F23) |
| Ethnic-Chinese FDI firms (F23) | Declining performance over time relative to non-ethnic-Chinese firms (L25) |