From Overseas Value Creation to Common Prosperity: Evidence on the Home-Country Welfare Effects of China’s Outward Foreign Direct Investment

Using a balanced panel of 30 Chinese provinces from 2003 to 2020, this study examines the relationship between outward foreign direct investment (OFDI) and common prosperity in the home economy. We construct an entropy-weighted index distinguishing prosperity levels from the sharing of development gains and estimate province and year fixed-effects models with province-clustered standard errors using per capita OFDI stock. OFDI is positively associated with overall common prosperity, with more consistent evidence for prosperity than for sharing across the baseline and most non-IV robustness specifications. Instrumental-variable estimates remain supplementary evidence conditional on instrument validity and inference assumptions. Channel-proxy regressions show positive associations with innovation, human capital, industrial structure, corporate income tax revenue, and public science and technology expenditure, consistent with potential channels rather than established causal mechanisms. Negative export-to-GDP associations do not directly test the proposed overseas market-expansion mechanism. Regionally, positive associations are clearest in eastern China. Spatial models indicate positive indirect associations under both weighting matrices, although their magnitudes are sensitive to spatial structure and sample composition. Destination-weighted geopolitical risk has positive interaction coefficients, whereas global risk provides weak negative-moderation evidence for overall common prosperity and sharing. Overall, the findings connect OFDI’s home-country outcomes to the economic and social dimensions of sustainable development by distinguishing improvements in average prosperity from evidence that development gains are broadly shared.