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
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: Suggested Citation