Officials' Foreign Experience and Firms' Exports: Evidence from China

• Published date: 01 May 2023
• Author: Yekun Xu,Guangyuan Ma,Lijuan Cui
• Date: 01 May 2023
• DOI: http://doi.org/10.1111/cwe.12487

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 173–204, Vol. 31, No. 3, 2023 173

Offi cials’ Foreign Experience and Firms’ Exports:

Evidence from China

Yekun Xu, Guangyuan Ma, Lijuan Cui*

Abstract

This study examines how the foreign experience of local offi cials aff ects fi rms’ exports in

China. Using a matched sample from 2000 to 2012, we found that the foreign experience

of municipal Party secretaries had a signifi cant impact on the promotion of fi rms’ exports,

especially for private firms. This positive impact was more pronounced when officials

went abroad at a younger age, stayed abroad for a longer period, returned to China for

a longer time, and had greater promotion incentives. We found that officials’ foreign

experience helped to mitigate the negative impact of institutional distance and provided

firms with better access to export subsidies, both of which could promote exporting.

There was also a complementary eff ect when offi cials and executives both had foreign

experience. Overall, our study provides some insights into the economic outcomes of

offi cials’ foreign experience and sheds light on the export performance of Chinese fi rms.

Keywords: fi rm exports, foreign experience, institutional distance, learning eff ect, local

offi cials

JEL codes: D22, F14, P33

I. Introduction

Individuals with experience of living overseas have been returning to China in recent

years, bringing with them valuable knowledge and skills acquired through study, work,

and training.1 These returnees have also developed a global outlook and extensive

*Yekun Xu, Professor, Business School, Liaoning University, China. Email: xuyekun@lnu.edu.cn; Guangyuan

Ma (corresponding author), PhD Candidate, School of Accountancy, Shanghai University of Finance and

Economics, China. Email: mgy1031lnu@126.com; Lijuan Cui, PhD Candidate, School of Economics, Zhejiang

University, China. Email: cuilijuan@zju.edu.cn. This research was supported by the National Natural Science

Foundation of China (No. 71802041), Liaoning Revitalization Talents Program (No. XLYC1907159), the Key

Project of Social Science Fund of Liaoning Province (No. L20AGL009), and the Postgraduate Innovation Project

of Shanghai University of Finance and Economics (No. CXJJ2021304). The authors contributed equally.

1According to statistics from the Ministry of Education of the People’s Republic of China, the number of foreign

students in 2016 was 544,500, an increase of 144,900 (32.6 percent) from 2012. The total number of returnees was

432,500, an increase of 159,600 from 2012. Available from: http://www.moe.gov.cn/jyb_xwfb/xw_fbh/moe_2069/

xwfbh_2017n/xwfb_170301/170301_sfcl/201703/t20170301_297675.html [online; cited November 2022].

Yekun Xu et al. / 173–204, Vol. 31, No. 3, 2023

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

174

international networks. They provide unique human and social capital and have become

an important force for economic development and technological progress in China.

Hence, a growing body of literature has examined individuals’ foreign experience

(Yuan and Wen, 2018; Zhang et al., 2018), with a particular focus on that of corporate

executives (Dai and Liu, 2009; Giannetti et al., 2015; Yuan and Wen, 2018; Zhang et al.,

2018). However, few studies have explored the significance of officials’ foreign

experience. This paper aims to fi ll this gap by examining the eff ects of local offi cials’

foreign experience on exports.

Local officials play a critical role in China’s economic development, exerting a

powerful infl uence on fi rms’ operations ( Xu, 2011; Su et al., 2012; Zhang et al., 2019).2

In particular, officials with foreign experience have been playing an increasingly

important role in China’s political and economic life (Li, 2010). Over the last 40

years, reforms in China have seen a growing number of officials studying in foreign

institutions, partly due to a policy introduced by Deng Xiaoping in 1983, which

emphasized the value of utilizing foreign talent ( Li, 2006). By the end of the 20th

century, some provinces or cities (e.g., Shanghai, Beijing, Guangdong, Sichuan, Henan,

Shandong, etc.) had initiatives to send offi cials overseas for training or study. In 2003,

the National Organization Work Conference highlighted the importance of sending

cadres abroad for training, to explore new methods of international cooperation and

joint education, and to cultivate leaders with international experience. In the same year,

the National Talent Work Conference clarifi ed the principle of cadre training as “domestic

training as the mainstay and foreign training as the supplement,” and stated that a large-

scale “borrowing wisdom from abroad” project would be developed rapidly throughout

China. However, despite the ensuing dramatic increase in both the prevalence and

importance of offi cials with foreign experience, there is little empirical evidence of how

their foreign experience aff ects fi rms’ operations.

We posit that firms’ exports are influenced by officials with foreign experience.

Such experience may bring signifi cant benefi ts to enterprises in terms of overcoming

institutional distance (Xie and Li, 2017), which is recognized as a critical obstacle in

international business (Peng et al., 2008), including exports (Xie and Li, 2017), due to

2Below the central government, there are four levels of subnational government in China: provincial,

municipal level (or prefecture), county, and township. For more details, see Xu (2011). At each local level,

the secretary of the local Communist Party committee and the head of the executive branch (e.g., governor at

the provincial level and mayor at the city level) assume the highest offi ces (Yao and Zhang, 2015; Que et al.,

2019). By law, the mayor is the executive offi cer of the municipal government; however, the Party secretary

is clearly the most infl uential fi gure because important decisions are made in the Party committee (Yao and

Zhang, 2015).

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Offi cials’ Foreign Expe rience and Firms’ Exports 175

its complexity and uncertainty (Sousa et al., 2008; Filatotchev et al., 2009; He et al.,

2013). Offi cials’ foreign experience can help fi rms to reduce transaction costs, alleviate

information asymmetry, and overcome institutional distance (Luo et al., 2010; Du and

Boateng, 2015). Further, local politicians have both the ability and incentives to promote

fi rms under their jurisdiction to integrate into the global market. Local leaders compete

for performance-based political promotions in China, which motivates them to infl uence

the decision-making of firms under their direct and indirect control (Piotroski et al.,

2015). Exporting can enhance local economic growth, the dominant goal for most local

offi cials (Yao and Zhang, 2015); offi cials may therefore promote fi rm exports. Moreover,

governments and offi cials play an important role in the process of internationalization

of China’s firms ( Luo et al., 2010; Du and Boateng, 2015); they have enormous

power and possess vast economic resources. Local politicians studying abroad learn

about foreign countries’ customs and bring advanced concepts, knowledge, skills, and

experience to their administrative area (Li, 2006). They are also more likely to infl uence

the formulation of local policies than their counterparts (Li, 2010), and therefore have

a more direct impact on local economic development (Li, 2006). In their quest for

political promotion, local officials encourage enterprises to participate in exporting,

in turn demonstrating their political achievements ( Defever and Riaño, 2017). The

decentralized system in China also creates incentives for offi cials to promote exporting

through subsidies and tax policies (Defever and Riaño, 2017), enabling competition with

other local governments.

Using fi rms’ export data collected from China’s Customs from 2000 to 2012, with

matched data of listed companies and municipal Party secretaries, this study investigated

the eff ects of local offi cials’ foreign experience on fi rms’ exports. We employed several

approaches to deal with endogeneity, and explored potential channels for the eff ect by

regressing the interaction of foreign experience and institutional distance on exports,

as well as employing a mediation test. Our results show that Party secretaries’ foreign

experience was significantly and positively correlated with firm exports, and this

promotion eff ect was particularly evident for private fi rms. Foreign experience obtained

from both study and training may promote fi rm exports. Offi cials’ foreign experience

also helps to overcome the negative impacts of institutional distance on exporting and

to promote exports by providing better access to export subsidies. Moreover, offi cials’

foreign experience and corporate executives’ foreign experience are complementary in

promoting exports.

This study contributes to the existing literature in several ways. First, it is the fi rst

study to investigate empirically the importance of offi cials’ foreign experience for fi rm

operations, extending the literature on individual foreign experience. Prior studies have