Does Banking FDI Promote Firm FDI?

2022 Fiscal Year Final Research Report

• Project/Area Number: 21K20161
• Research Category: Grant-in-Aid for Research Activity Start-up
• Allocation Type: Multi-year Fund
• Review Section: 0107:Economics, business administration, and related fields
• Research Institution: Waseda University
• Principal Investigator: Kikuchi Tomoo 早稲田大学, 国際学術院(アジア太平洋研究科), 教授 (60906527)
• Project Period (FY): 2021-08-30 – 2023-03-31
• Keywords: Multinationals / China banking FDI / Manufacturing FDI / Credit constraints

Outline of Final Research Achievements

We investigate the relationship between bank FDI and manufacturing firm FDI using a detailed firm-level dataset on outbound multinational activity from China that was contemporaneous with the global expansion of China's Big-5 banks. We find that the establishment of a Big-5 bank subsidiary or branch is associated with a significant increase in subsequent years in Chinese firms' likelihood to establish an overseas subsidiary in that host country. We present tests - including an instrumental variables strategy - that build a case that the relationship from China's bank FDI to firm FDI is causal in nature. We discuss supporting evidence to show that China's bank presence abroad serves to facilitate the financing needs of Chinese firms' overseas subsidiaries. The findings speak to a nexus between the internationalization of a country's banks and the ability of that country's firms to engage in multinational activity abroad.

Free Research Field

International Macroeconomics

Academic Significance and Societal Importance of the Research Achievements

Our results suggest that foreign firms trying to do FDI in a host country find it harder to obtain financing than domestic firms in that host country as it is more difficult for host-country banks to verify information that would be relevant about the credit-worthiness of the foreign firms.