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Why has China invested heavily in countries with weak market environments? A new explanation and implications for China-Africa economic cooperation

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  • Luo, Changyuan
  • Chen, Zhitao

Abstract

This paper investigates why China has invested heavily in countries with weak market environments. We provide a theoretical hypothesis that experiences and abilities acquired by Chinese enterprises in dealing with incomplete market environments at home help them conduct investment abroad. We match many databases and use government work experience of executives to capture the enterprise's experiences and abilities. The results show that the government work experience of executives helps enterprises overcome the constraints of unfavorable market environments in the destination country, and this effect is strongly reflected in host countries where resources are scarce, wages are low, and patent stocks are limited. These research findings have important implications for economic cooperation between China and Africa. Chinese enterprises have grown in an incomplete market environment. The experience they have accumulated is helpful for expanding investment opportunities in the African market, which has a positive impact on bilateral economic cooperation.

Suggested Citation

  • Luo, Changyuan & Chen, Zhitao, 2024. "Why has China invested heavily in countries with weak market environments? A new explanation and implications for China-Africa economic cooperation," China Economic Review, Elsevier, vol. 88(C).
  • Handle: RePEc:eee:chieco:v:88:y:2024:i:c:s1043951x24001342
    DOI: 10.1016/j.chieco.2024.102245
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    More about this item

    Keywords

    Market imperfections; Government work experience; Institutional environments; Outward FDI;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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