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Political Environment and Chinese OFDI Under RMB Appreciation: A Panel Data Analysis

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  • Haiyue Liu
  • Xiaolan Chen
  • Ying Wu

Abstract

We examine the role of political environment (PE) in determining Chinese multinational corporations’ (MNCs) investment decisions considering the RenMinBi (RMB) exchange rate (ER) movement. System generalized method of moments, feasible generalized least squares, and fixed effect estimations are employed to conduct a panel data analysis of 92 countries for the period of 2003–2015. Our empirical results reveal that Chinese outward foreign direct investment (OFDI) responds negatively to ER risk and political risks individually. After introducing the joint effect of PE and ER movement, the results suggest that Chinese OFDI’s risk preference to PE is reversed when RMB is appreciating. We argue that Chinese firms are still risk-avert when considering investing abroad. The empirical result shed light on better understating of Chinese OFDI patterns and motivations.

Suggested Citation

  • Haiyue Liu & Xiaolan Chen & Ying Wu, 2018. "Political Environment and Chinese OFDI Under RMB Appreciation: A Panel Data Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(15), pages 3470-3484, December.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:15:p:3470-3484
    DOI: 10.1080/1540496X.2018.1504208
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    Cited by:

    1. Wang, Xiaoying & Anwar, Sajid, 2022. "Institutional distance and China's horizontal outward foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 1-22.
    2. Parfait Bihkongnyuy Beri & Gabila Fohtung Nubong, 2021. "Impact of bilateral investment treaties on foreign direct investment in Africa," African Development Review, African Development Bank, vol. 33(3), pages 439-451, September.
    3. West Togbetse & Camelia Turcu, 2023. "Chinese FDI in Africa, natural resources and the energy transition challenges," Working Papers 2023.15, International Network for Economic Research - INFER.

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