Who Leads and Who Follows? The Cross-Border Peer Effect in Investment by Chinese and US Firms

60 Pages Posted: 7 Apr 2021 Last revised: 3 Jan 2024

See all articles by Warren Bailey

Warren Bailey

Cornell University; Fudan University - Fanhai International School of Finance

Jerry Cao

Hang Seng Business School; SUN YAT-SEN UNIVERSITY

Zhenyi Yang

Guangxi University

Sili Zhou

University of Macau - Faculty of Business Administration

Date Written: September 27, 2023

Abstract

We document a cross-border peer effect in corporate investment across two key economies, China and the US. Results show that investment by individual Chinese firms lags US peers without feedback in the other direction. This association is stronger for Chinese firms in manufacturing, with innovative US peers, once China joined WTO, or targeted by anti-dumping investigations or measures as reported to the WTO. These findings are robust to diagnostic tests and alternative specifications. Furthermore, Chinese firms respond to domestic competition by learning from US peers. Our findings illustrate how peer competition induced by foreign trade and international institutions affects corporate decision-making in China’s rapidly-growing economy.

Keywords: Peer effect, US, China, investment, WTO

JEL Classification: G31, E22, D81, G32, F65

Suggested Citation

Bailey, Warren B. and Cao, Xiaping and Yang, Zhenyi and Zhou, Sili, Who Leads and Who Follows? The Cross-Border Peer Effect in Investment by Chinese and US Firms (September 27, 2023). Journal of International Economics https://doi.org/10.1016/j.jinteco.2023.103875, Available at SSRN: https://ssrn.com/abstract=3807216

Warren B. Bailey (Contact Author)

Cornell University ( email )

S. C. Johnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Fudan University - Fanhai International School of Finance ( email )

China

Xiaping Cao

Hang Seng Business School ( email )

Hong Kong
Hong Kong

SUN YAT-SEN UNIVERSITY ( email )

135 Xingang Xi Road
Guangzhou, 510275
China
+862084111154 (Phone)

Zhenyi Yang

Guangxi University ( email )

East Daxue Road #100
Nanning, Guangxi 530004
China

Sili Zhou

University of Macau - Faculty of Business Administration ( email )

Macau

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