Research
From 2000 to 2015, China's outbound foreign direct investment (FDI) increased by an impressive 158-fold, while its export quality has also improved significantly. In this paper, I construct a new data set on China's outbound FDI to study its effects on export product quality. Using supervised machine learning, I analyze and categorize a comprehensive list of Chinese outbound FDI projects from the Ministry of Commerce, which includes more than 26,000 pieces of textual information on the primary business scope of Chinese overseas affiliates. I find a positive correlation between R&D FDI, which is FDI that establishes R&D facilities abroad, and Chinese firms' export quality. This correlation is more pronounced in sectors with a greater scope for product differentiation. Conversely, firms engaging in other forms of FDI do not experience such quality improvements post-FDI. I build a simple model in partial equilibrium with heterogeneous firms, endogenous quality, and production fragmentation to formalize a potential mechanism of quality upgrading---hiring offshore experts with cutting-edge innovation capacity. This research may guide policy prescriptions for China and the U.S., as the former promotes FDI as a development strategy, and the latter considers it a threat to national interests.
Caught in the Crossfire: Korean Exports and the US-China Trade War (with Mary E. Lovely and David Xu)
This paper estimates the extent to which the US-China trade war harmed Korea's exports to China. Korea is China's most important import partner, supplying more than one-fifth of China's total imports of machinery and electronics. As Trump's tariffs reduced U.S. imports of Chinese goods, Chinese demand for the intermediate inputs needed to produce the goods for the American market also decreased. We create a unique trade-weighted input and output table based on China Customs Records of firm-level transactions, specifically, Chinese firms' imports of Korean goods and exports to the U.S. We then calculate a Korea-specific tariff schedule that reflects the change in US-China tariffs using the input and output table as weights. Preliminary results from reduced-form regressions suggest that U.S. tariffs have a detrimental impact on Korean exports to China. This observation underscores the need for further research to understand how trade shocks propagate through supply chains and affect various trading partners.
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The Effects of Chinese R&D FDI on the Extensive Margins of Export
Extending my job market paper, which shows robust quality adjustments within firm-product-country over time, i.e., along the intensive margins, this paper examines Chinese firms' adjustments along the extensive margins following R&D FDI. That is, how the number of products a firm trades and the number of export destinations changes. Preliminary analysis finds that Chinese firms noticeably increase the number of products they offer---products defined at the Harmonized System 6-digit (HS6) level---as well as the number of destination countries they serve. However, several important questions remain. First, how does the new product's quality and level of sophistication compare to the firm's old products? Second, what are the characteristics of the countries that the firms are beginning to export to? Finally, as countries like the U.S. and Europe, which have traditionally hosted much of Chinese FDI, become increasingly anxious that China is gaining an unfair competitive advantage by acquiring technology and know-how through these ventures, it becomes vital to explore whether Chinese FDI harms Western firms. One metric of harm could be reduced global share of Western exports in the HS6 product spaces that Chinese firms have entered post-FDI.
Publication
Mary E. Lovely, David Xu, and Yinhan Zhang, 2021. ``Collateral benefits? South Korean exports to the United States and the US-China trade war," Policy Briefs PB21-18, Peterson Institute for International Economics. https://www.piie.com/publications/policy-briefs/collateral-benefits-south-korean-exports-united-states-and-us-china