The nexus between outward foreign direct investment and export sophistication: new evidence from China

Abstract

This article investigates the bidirectional causal relationship between outbound foreign direct investment (ODI) and export sophistication in China by using autoregressive distributed lag (ARDL) techniques. The findings detect cointegration and bidirectional causal relationship between export sophistication and ODI. The empirical evidence supports that ODI strongly promotes export sophistication and export sophistication weakly encourages Chinese ODI to go out global. The nexus between ODI and export sophistication is good news for China to enhance the quality of exports and catch-up on developed economies. The control variables of trade openness, human capital and quality of institutions improve the strength of cointegration between ODI and export sophistication and play a significant role in promoting the two variables of our interest.