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Why is U.S. direct investment in China so small?

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  • KH. Zhang

Abstract

While the United States is the largest source of foreign direct investment (FDI) in the world, and China is the largest FDI recipient among developing countries, U.S. direct investment (USDI) in China has been surprisingly small. This article investigates the determinants of USDI through a relative‐demand model with time‐series data. Evidence presented in this article indicates that the small USDI cannot be fully appreciated without understanding differences between USDI and Hong Kong direct investment (HKDI), the latter being the dominant source of FDI in China. Empirical results suggest that the USDI in China was primarily motivated by market access and that the HKDI was export oriented. The small USDI thus is a result of U.S. investors' preference for market access and China's export‐promotion FDI regime, along with the troubled Sino‐U.S. relations and political instabilities in China.

Suggested Citation

  • KH. Zhang, 2000. "Why is U.S. direct investment in China so small?," Contemporary Economic Policy, Western Economic Association International, vol. 18(1), pages 82-94, January.
    • Handle: RePEc:bla:coecpo:v:18:y:2000:i:1:p:82-94
    DOI: 10.1111/j.1465-7287.2000.tb00008.x
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    References listed on IDEAS

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    1. Markusen, James R. & Venables, Anthony J. & Eby Konan, Denise & Zhang, Kevin H., 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," Working Paper Series 465, Research Institute of Industrial Economics.
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    Cited by:

    1. Katiuscia Vaccarini, 2014. "Psychic distance and FDI: the case of China," Working Papers 1403, c.MET-05 - Centro Interuniversitario di Economia Applicata alle Politiche per L'industria, lo Sviluppo locale e l'Internazionalizzazione.
    2. Kevin Honglin Zhang, 2001. "What Attracts Foreign Multinational Corporations To China?," Contemporary Economic Policy, Western Economic Association International, vol. 19(3), pages 336-346, July.
    3. Yao, Shujie & Wei, Kailei, 2007. "Economic growth in the presence of FDI: The perspective of newly industrialising economies," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 211-234, March.
    4. Yi Liu & Cecil Pearson, 2011. "The Determining Factors of Western Australia’s (WA) Foreign Investment in China," Global Business Review, International Management Institute, vol. 12(1), pages 1-20, February.
    5. Owen C. H. Ho, 2004. "Determinants of Foreign Direct Investment in China: A Sectoral Analysis," Economics Discussion / Working Papers 04-18, The University of Western Australia, Department of Economics.
    6. Christer Ljungwall & Martin Linde-Rahr, 2005. "Environmental Policy and the Location of Foreign Direct Investment in China," Governance Working Papers 22020, East Asian Bureau of Economic Research.
    7. Hsiao, Frank S. T. & Hsiao, Mei-Chu W., 2004. "The chaotic attractor of foreign direct investment--Why China?: A panel data analysis," Journal of Asian Economics, Elsevier, vol. 15(4), pages 641-670, August.
    8. Omer Ali Ibrahim & Sufian Eltayeb Mohamed Abdel-Gadir, 2015. "Motives and Determinants of FDI: A VECM Analysis for Oman," Global Business Review, International Management Institute, vol. 16(6), pages 936-946, December.
    9. Shih-Ying Wu & Mei-Jane Teng, 2012. "Fiscal decentralization and multinational firms’ ownership: evidence from China," Economics of Governance, Springer, vol. 13(3), pages 237-262, September.

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