Research Highlight

Anwar, S. & Sun, S. (2024), The Impact of Raw Material Import Ban on Vertical Outward FDI: Theoretical Insights and Quasi-Experimental Evidence

Presented at:

The 34th Annual Conference of Chinese Economics Society Australia, UNISA, Adelaide, 28-29 November, 2024;

The Australasian Trade Workshop 2025, Queensland University of Technology, Brisbane, 15-16 March 2025.

Highlights: 

1. Adverse supply-side shocks in the intermediate input market increase unit costs, but firms opt for overseas investment only when the shocks are sufficiently severe or when pre-existing costs are already elevated. 

2. In this context, firm heterogeneity generates a sorting pattern, wherein more productive firms are more likely to pursue vertical OFDI. 

3. Empirically, we examine the effect of the 2017 waste paper import ban in China as an exogenous policy shock. Our results indicate that the waste paper import ban led to around 16% increase in the probability of vertical OFDI in the post-policy period, relative to a control group.