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Determinants of Chinese Foreign Direct Investment in Central and Eastern Europe

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  • Barbora Abu Dayeh
  • Martin Janíčko

Abstract

The article deals with China's outward direct investment (ODI) in Europe. The ODI has been on the rise and is unique in the sense that its development is much faster than in any other developing country. We investigate the determinants of Chinese ODI in ten countries of Central and Eastern Europe in the time span of 2005 and 2018. Using panel data analysis, the regression model incorporates both traditional macroeconomic variables as well as selected institutional variables, trying to test which of those work best at explaining the Chinese investment activity in the countries of interest. The quality of the institutional framework is represented by EBRD indicators, which seem to be more suitable for transition economies. Findings generally suggest that Chinese multinational enterprises do not access Central and Eastern European countries primarily for market-seeking reasons. However, the fact of being a member of the EU helps Chinese ODI since the membership is used as a sort of "backdoor" to the large European markets. Still, Chinese ODI is less likely associated with a sound institutional environment of a host country, as the opposite appears to be true. These findings, therefore, support the hypothesis that access to the single EU market and R&D spending are more important determinants of the Chinese ODI than almost any other factors. Implications for Central European audience: The article explores the main drivers of Chinese foreign direct investment in the CEE region while it employs the most relevant theoretical framework, including several recently developed theories. The quantitative analysis then thoroughly explores the weight and sign of selected drivers using recent data and questions some of the conventionally accepted surmises about motivations of Chinese investment activity in the CEE region. This is an important topic given the ongoing debates about China's influence in the region as well as about the intensity and general value added of its investment activity.

Suggested Citation

  • Barbora Abu Dayeh & Martin Janíčko, 2021. "Determinants of Chinese Foreign Direct Investment in Central and Eastern Europe," Central European Business Review, Prague University of Economics and Business, vol. 2021(3), pages 19-36.
    • Handle: RePEc:prg:jnlcbr:v:2021:y:2021:i:3:id:254:p:19-36
    DOI: 10.18267/j.cebr.254
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign direct investment; China; CEE region; institutional determinants; macroeconomic determinants; panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • 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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