THE IMPACT OF FOREIGN DIVESTMENT ON CHINESE FIRMS' EXPORT QUALITY

Divestment by multinational corporations is a significant yet poorly understood phenomenon. We focus on divestments, that is, affiliates that have been divested by their foreign owners and then acquired by domestic owners. Using a combination of difference-in-differences and propensity score matching methods, we investigate the impact of foreign divestment on export quality. Results show that foreign divestment significantly negatively impacts the quality of firms' export. Furthermore, "productivity effect" and "fixed cost effect" are two mechanisms by which foreign divestment influences export quality. Our findings provide a deeper understanding of benefits from foreign direct investment and economic consequences of foreign divestment.