The Impact of Foreign Divestment on Export Performance: Evidence from Foreign Firms in China

Foreign investment and exports play crucial roles in the economic growth of developing countries. We use foreign divestment in China as a quasi-natural experiment and employ a time-varying difference-in-differences model to study the impact of foreign divestment on the export performance of divested subsidiaries in host countries. We find that foreign divestment significantly reduces firms' export decisions and scale, and the results are robust to various tests on variables, samples, and models. We also find that firms' export responses to foreign divestment vary with ownership, product type, productivity, source of foreign investment, destination country, and location. The impact of foreign divestment on export performance may be related to supply chain disruptions, tightened financing constraints, and reduced management efficiency. Our research offers valuable insights into foreign investment management for developing countries.