Foreign Ownership and International Trade Performance in China

Abstract We investigate the causal relationship between foreign ownership and international trade performance by comparing foreign‐acquired firms with similar domestic‐acquired firms in China with regard to changes in their post‐acquisition international trade performance. Our findings indicate that foreign ownership significantly enhanced the probability of both exporting and importing, and strongly increased trade value. Foreign ownership took effect from the year of the acquisition and persisted for at least 2 years. It stimulated both processing trade and ordinary trade, and expanded products and trading partners. Post‐acquisition trade performance also exhibited heterogeneity based on the different pre‐acquisition and post‐acquisition ownership. As for the underlying mechanisms, we show that firms experienced significant output expansion, increased export dependence, and eased financial constraints after foreign acquisition.