Global value chain upgrading effect of foreign capital withdrawal: Evidence from Chinese firms

Is foreign capital withdrawal historical opportunity or realistic challenge for Chinese firms to upgrade their global value chain (GVC)? Based on the framework of demand and supply, this study examines the impact and main characteristics of foreign capital withdrawal on upgrading Chinese firms’ GVCs and finds that foreign capital withdrawal promotes the upgrading of firms’ GVC as a whole and the effect is a consequence technological innovation on the supply side and the market scale on the demand side, especially exploratory innovation, utilisation innovation and the domestic market demand. Further research shows that the effect of foreign capital withdrawal on GVC upgrading of small- and medium-sized firms, general trading firms, foreign capital holding firms and non-Hong Kong, Macao，and Taiwan foreign forms is stronger. Foreign capital withdrawal from firms with a low-technology organic composition has a significant GVC upgrading effect; besides, the GVC upgrading effect of foreign capital withdrawal in competitive industries is obviously stronger than that in monopolistic industry. These conclusions help in better understanding China’s foreign capital withdrawal and its economic impact, developing efficient and reasonable countermeasures and promoting Chinese firms in the global market.