1. Introduction
Export trade is one of the prime influencing factors in China’s increasing economic growth [
1]. Since participating in the World Trade Organization (WTO), China’s import and export trade has witnessed rapid growth [
2]. Consequently, China has emerged as the world’s largest export-oriented trading economy. However, with China’s total factor costs rising daily, the participation of other developing countries in global competition, and the escalation of global trade protectionism, China’s traditional low-cost advantage is gradually shrinking [
3]. As China’s low-price export strategy becomes unsustainable, the focus on trade is shifting from expanding the export scale to increasing the technological sophistication of products [
4]. China is actively pursuing the “going global” approach to change its export trade status. Indeed, FDI increased from USD 6.9 billion to USD 1451.9 billion in 2021, with a progressive yearly growth rate of 16.45% [
5]. In the process, China has overtaken the United States with the most FDI outflow since 2020. The development of China’s manufacturing industries has become more obvious [
6,
7], thereby demonstrating a massive fundamental transformation [
6].
Interestingly, the fourth industrial revolution (Industry 4.0) radically alters how corporations produce, enhance, and market their goods [
7]. The Internet of Things (IoT), cloud computing, manufacturing and analytics, artificial intelligence, and computational modeling are emerging technologies that companies now incorporate into their manufacturing processes and other aspects of their business procedures [
8,
9]. Slow industrialization and distribution of Industry 4.0 in underdeveloped nations’ manufacturing sectors might create global inequality, as in past technology transitions [
10]. Moreover, intelligent manufacturing is becoming a new engine of global economic development and the core driving force of industrial system reform [
11]. Developing countries cannot afford to miss this new wave of technological change [
12].
Previous studies have pointed out that Industry 4.0 can achieve significant increases in enterprise productivity and automation, which can not only reduce costs, improve market efficiency, and integrate the supply chain [
13,
14] but also significantly improve the quality of the enterprise’s products, leading to higher profits [
15]. Many scholars also point to the advances in big data and analytics, artificial intelligence, and machine learning generated by Industry 4.0 [
16,
17], which means that manufacturers can choose from hundreds of potential solutions and technology applications to improve the way they work, potentially significantly improving labor productivity and manufacturers’ operations [
18,
19]. It is obvious that the phenomenon of Industry 4.0 has also brought many social changes. Andrius et al. [
20] point out that the new jobs created under Industry 4.0 are mostly skill-intensive and can lead to severe skill mismatches, especially among the aging working class, leading to extreme job disruptions and unemployment and causing social problems.
Seemingly, various existing studies also point out that although Industry 4.0 enables the precise control of energy consumption and waste disposal in companies, the technologies supporting Industry 4.0 consume resources and energy and also have negative environmental impacts [
21,
22]. Aligning with the trends in Industry 4.0, the competent emerging nations are tending to restructure their industrial foundations over time, substituting lower value-chain services and simple export products with more significant operations and increasingly sophisticated items [
23,
24]. It will not only help in the exploration of the path to improving the manufacturing industry’s green innovation performance but also help investigate the deep-seated reasons why China’s manufacturing industry is “large but not strong,” which will facilitate the transformation of green innovation and promote China’s manufacturing industry from the low-end to the middle and high-end global value chain [
25].
The existing research on the impacts of FDI on export sophistication mainly focuses on whether enterprises invest abroad or expand the scale of foreign investment. However, many macroeconomic indicators can also explain this phenomenon, such as the level of economic and technological development of the host country, the level of economic development of the home country, and the export and import costs of the home country. The study of export economic impacts of outward foreign direct investment (OFDI) is a common occurrence in the literature, although focusing mainly on the level of investment volume. In this respect, Kogut and Chang [
26] were the first to examine the home-country technology spillover from FDI. Potterie and Lichtenberg [
27] analyzed the technology spillover impacts of trade, FDI, and OFDI using a sample of industries in 13 countries and regions from 1971 to 1990. A significant positive spillover impact on home country productivity was found in investing countries and areas with high R&D intensity. Driffied and Love [
28] argued that the pursuit of ownership is not a motivation for OFDI but rather for the acquisition of advanced technology in the host country through investment. The reverse technology spillover impact of OFDI on the domestic manufacturing sector is influenced by the spatial concentration of industries, which is only significant in R&D-intensive industries [
29,
30]. Masso et al. [
31] established that firms have access to advanced foreign technologies through OFDI. By analyzing the OFDI activities of firms in nine new European countries, Damijan et al. [
32] found that OFDI substantially improved parent companies’ productivity, which is different in different sectors and countries. According to Anderson et al. [
33], the OFDI process passes technology investment, and OFDI is incorporated into the production process as a noncompetitive investment.
The discussion above gives rise to the following questions: (i) does the host country’s FDI restrictiveness inhibits the export sophistication of the home country? (ii) What are the possible mechanisms for restricting FDI? (iii) What are the prime channels by which the host country sets FDI restrictiveness? Those have become the primary concerns of academics and industry. In contrast to previous literature, this study intends to answer those research questions by evaluating the impacts of various sorts of FDI restrictiveness on export sophistication in different sectors. The main contributions of the study are as follows: (i) Existing research on the export impacts of FDI focuses on whether enterprises invest abroad or expand the scale of foreign investment. This research will be one of the first attempts to investigate the impact of the host country’s FDI restrictiveness on the home country’s export sophistication. (ii) The previous literature on the export impacts of FDI mainly focuses on macro-level studies. In this study, the research perspective is specific to various manufacturing enterprises. (iii) The article explores the impacts of different host countries’ FDI restrictiveness on the export sophistication in different industries and provides targeted analysis of and elaboration on the differences. It also verifies that investment constraints in the host country affect the export sophistication of manufacturing enterprises through the resource allocation impact and reverse technology spillover. We used combined data from the China Industrial Enterprise Database and the China Customs Trade Database to assess the causal impact of the host country’s FDI restrictiveness on the export sophistication of the home country.
5. Discussion
The prime aim of the study was to comprehensively explore and elaborate on the impact mechanism of FDI restrictiveness of host countries’ and home countries’ technological sophistication. Moreover, we outlined how capital access constraints impact manufacturing firms’ exports using the China Industrial Enterprise Database and the China Customs Database from 2010 to 2013. Our study finds that a strict capital access constraint in the host country can significantly lower the technological sophistication of manufacturing firms’ exports. The findings are well aligned with the various previous studies, which have shown that capital access and capital controls in host countries present strict constraints that significantly increase the external financing costs of home country firms, which in turn affects outward FDI [
54,
55,
56]. Moreover, we found that foreign equity limits, screening and approval requirements, and other operational restrictions have an optimistic impact on shaping manufacturing firms’ export sophistication. The findings are partially supported by Beghin et al. [
57] and Chen et al. [
58]. In practical terms, facilities and infrastructure support provided by the host countries can significantly reduce the FDI risk, thus helping home country enterprises carry out stable technological inputs [
59]. As a result, it is conducive to shifting the production of our primary products to labor-intensive countries and shifting the export market share from low export technical complexity to high export technical complexity with good efficiency [
60,
61]. However, as the increase in the local constraints in some host countries will significantly assist other countries’ enterprises in carrying out capital investment, it will substantially reduce the technological complexity of manufacturing exports in the home country. Interestingly, by exploring the trends in and determinants of FDI within heavy industries in Sri Lanka, Ravinthirakumaran et al. [
62] found similar findings.
In addition, scholars generally agree that foreign investors are relatively more productive producers, are one of the critical drivers of technological development, and play an essential role in exports [
63]. Multinational corporations often possess advanced technologies and are subjects of technology spillovers, and FDI inflows can reduce technology development and learning costs, thus contributing to the technological sophistication of exports [
64]. However, many regional host countries are subject to control and regulation, or there are differences with multinational enterprises in terms of culture and philosophy, business model, etc. that undoubtedly cause the export of technical complexity to decline [
65]. Sun et al. [
66] pointed out that developing agreements such as regional trade agreements can reduce capital access constraints in host countries and significantly contribute to the export quality of Chinese manufacturers as exogenous trade costs fall relative to lower average tariff levels. The findings are parallel with our study. In addition, we find that the host country’s capital access constraints have a depressing effect on the technical complexity of exports of firms in the light textile and resource processing industries and a facilitating impact on the technical complexity of the exports of firms in the machinery and electronics industry. The assumptions are consistent with the study of Hu et al. [
67] and Cao et al. [
68]. In practical terms, capital access constraints in host countries reduce export technological complexity, and many host country access standards also have an impact. For example, implementing cleaner production standards in host countries significantly increases the export technical complexity of Chinese textile firms [
69]. Cleaner production standards increase export technological complexity by increasing textile firms’ capital and labor inputs and promoting innovation and productivity improvements [
70]. Our current study also outlines similar assumptions.
6. Conclusions
Foreign direct investment has positive and negative attributes for host countries’ perspectives and could be affected by various factors. Establishing an environment that is favorable to FDI and does not engage in discrimination has positive impacts over the long run. There has been some literature exploring the relationship between investment and exports. However, little literature has explored the impacts of the host country’s FDI restrictiveness from a policy perspective. Using the China Industry Business Performance Database and the Chinese Customs Trading Database from 2010 to 2013, this article empirically explores the relationship between the host’s FDI restrictiveness index and the export sophistication of the home country for the first time. In addition, we look into how different FDI constraints affect export sophistication within various circumstances. The prime findings of the study are as follows.
(i) We found that the host country’s significant FDI restrictions significantly impacted the advancement of the home country’s export sophistication, and foreign equity limits, stricter screening and approval requirements, and other operational restrictions were critical factors. In contrast, restrictions on vital foreign experts had a promotional effect on export sophistication. (ii) The impacts of FDI restrictions possessed significant variations within different industries. Among them, light textile and resource-processing enterprises were more adaptive toward the FDI restrictions, thus boosting export sophistication from mechanical and electronic enterprises. (iii) In contrast, export sophistication inhabited reverse technology spillover effects and resource allocation efficiency impacts and enhanced market resource distribution competence. Enterprises with skilled employees found the most effective method of extending the notion of reverse knowledge and technology spillovers and eventually upgraded their technology level. Manufacturing enterprises increased export sophistication by guiding resource allocation. Export trade models changed from the previous quantitative competition to quality competition. Ultimately, upgrading the industrial structure and transforming the economic development mode was achieved.
The study faces some limitations and challenges, which future studies should carefully handle to provide more robust assumptions and estimations. First, our study confirms that FDI in host countries limits the export maturity of traditional manufacturing home countries using data from 2013 and focusing on traditional manufacturing. However, the Industry 4.0 concept was only formally introduced in Germany in 2013 at the Hannover Messe. It generally evolved to emphasize the integration of manufacturing technologies and information and communication technologies (ICT) to overcome the negative impact of higher labor costs on the international competitiveness of manufacturing industries. Interestingly, the study does not examine the impact of Industry 4.0 technologies on the export sophistication of existing firms. Therefore, the effect of the role of Industry 4.0 in accordance with the technology intensity on enterprises’ export complexity should be examined more deeply by future researchers. Industry 4.0 has brought massive changes in how enterprises operate and manufacture, so future research needs to include Industry 4.0 technology intensity in the core research framework to outline more robust outcomes.
Second, our study was mainly based on traditional manufacturing industries, and the applicability of the findings may be greatly weakened in the context of Industry 4.0. Therefore, potential studies should highlight the technologies involved within various manufacturing enterprises and integrate the potentiality of big data, cloud manufacturing and ICT in the research sample to make the research results more representative. Third, the scope of our chosen study is only survey data from the China Industrial Enterprise Database and the China Customs Trade Database from 2010 to 2013, and the research results may be challenging to be universally applied in more regions and areas. Therefore, future studies should extend and use more cutting-edge and up-to-date data and diverse sectors to compile the measurement data. Finally, the study does not include crucial factors such as political circumstances, currency exchange rates, social/consumer behavior, factor endowments (labor, capital, and land), productivity, trade policies, inflation, and demand. Thus, potential studies should explore the impacts of these external factors on facilitating export restrictions by home countries. Moreover, export sophistication can be determined by factor endowments and productivity, trade policy, exchange rates, foreign currency reserves, inflation, and demand. Therefore, potential studies should investigate these internal factors while rectifying export sophistication.