FDI and Improvements in the Quality of Export Products in the Chinese Manufacturing Industry

This paper proposes theoretically that FDI(Foreign Direct Investment) not only increases the share of high-quality export products in China’s manufacturing industry but it also exerts an effect of demonstration and competition on local enterprises, thus facilitating local enterprises to improve the quality of their export products. We empirically test this theory by using the customs database, which confirms that FDI has a positive impact on the quality of Chinese export products. On the one hand, the export products of foreign-funded enterprises, making up more than 50% of the share of China’s exports, are of a higher quality than those of China’s local enterprises. On the other hand, FDI strengthens the market competition of local enterprises and promotes the TFP (Total Factor Productivity) of Chinese enterprises, thereby positively affecting the quality of their export products.