Chinese MNEs' Outward FDI and Home Country Productivity: The Moderating Effect of Technology Gap

Plain language summary Today, more than ever, Chinese multinational enterprises (MNEs) are investing abroad in search of advanced technology and managerial knowledge. Our study aims to understand whether Chinese MNEs' overseas investments benefit their home productivity. Focusing on provinces as the unit of analysis, we capture both direct and indirect effects of overseas investment on the parent company and other related actors. We find that such benefits occur only when local firms have the capability to learn from their MNE neighbors. When the technology gap between a home province and MNEs' host countries is too large, local firms and the economy cannot capture the benefits of reverse knowledge spillover. The identification of many Chinese provinces still not capturing the benefits offers broad implications for both local managers and policy makers. Technical summary This article adds to the literature investigating how emerging economy MNEs' outward foreign direct investment (OFDI) affects domestic productivity and the moderating role of technology gap on reverse spillovers. Considering provinces as the unit of analysis, our research captures both direct and indirect effects of Chinese MNEs' OFDI on the parent company and other related actors and finds that the effects of Chinese MNEs' OFDI on a province's productivity are contingent upon the level of technology gap between that location and host countries. Our estimation reveals a double‐threshold model that groups Chinese provinces into three categories based on their technology gap relative to the host countries. Most provinces are within the middle‐level and low‐level categories, indicating the potential for significant effects of Chinese MNEs' OFDI on domestic productivities. Copyright © 2016 Strategic Management Society.