Distribution margins and distribution-oriented FDI: Evidence from China

This paper constructs a new measure of distribution margins that covers more countries than that in the World Input-Output Database. Based on this measure, we develop a set of stylized facts and examine the effect of distribution margins on exporters' distribution-oriented foreign direct investment decision using customs data and foreign direct investment decision data from China. We find that higher distribution margins in destination countries drive exporters to conduct distribution-oriented foreign direct investment. Compared with specialized export intermediaries, manufacturers have a greater incentive to invest in distribution sectors abroad when faced with higher distribution margins.