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Unravelling the Complex Motivations behind China’s FDI

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  • Zhang Yi

Abstract

We empirically investigate the factors that drive China's outward FDI using dynamic panel methods for 27 countries from 1995 to 2002. Based on the literature review we test three hypotheses: comparative advantages in low wage countries, vertical integration towards resource and human capital abundant countries, and the transaction-enforcing FDI to complement exports. Our results provide strong support for the transaction-enforcing motive: China’s FDI follows exports. Next, only in the presence of exports, low income per capita is important arguably because low-income countries have a preference for Chinese low-cost exports. Finally, though this series we find no evidence of FDI to skill-abundant countries and no evidence that host market resources or governance matters.

Suggested Citation

  • Zhang Yi, 2009. "Unravelling the Complex Motivations behind China’s FDI," Working Papers 09-02, Utrecht School of Economics.
    • Handle: RePEc:use:tkiwps:0902
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    File URL: https://dspace.library.uu.nl/bitstream/handle/1874/309434/09_02.pdf
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    1. Shujie Yao & Fan Zhang & Pan Wang & Dan Luo, 2017. "Location Determinants of China's Outward Foreign Direct Investment," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 25(6), pages 1-27, November.
    2. Yao, Shujie & Wang, Pan & Zhang, Jing & Ou, Jinghua, 2016. "Dynamic relationship between China's inward and outward foreign direct investments," China Economic Review, Elsevier, vol. 40(C), pages 54-70.
    3. Yao, Shujie & Wang, Pan, 2014. "Has China displaced the outward investments of OECD countries?," China Economic Review, Elsevier, vol. 28(C), pages 55-71.

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    Keywords

    China; transaction-enforcing FDI; locational determinants;
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