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Chinese economic development, the next stage: outward FDI?

  • Liu, Xiaohui
  • Buck, Trevor
  • Shu, Chang

China's development path has been widely recognised as being unique, with gradual privatisation and marketisation, massive private capital inflows, and extensive exporting. All this has been achieved without political democratisation. This paper draws attention to a new emerging phenomenon--significant Chinese levels of outward FDI (OFDI)--and takes a first step towards understanding this development at an aggregate level. The question arises, is China's OFDI another unique characteristic of Chinese distinctive economic development path and reform policies, or does it follow an established, universal pattern, specifically Dunning's investment development path (IDP) hypothesis, or rather a refined version of the IDP? In other words, do Chinese OFDI patterns suggest refinements to established theories, or even their refutation? To address these questions, however, exogeneity tests reveal a need to use GMM estimation methods rather than straightforward regressions, since relations between economic development and OFDI are complex and inter-dependent. The GMM results suggest that the level of economic development, proxied by GDP per capita plus refinements, is still the main factor explaining China's rate of OFDI. This is quite consistent with the refined IDP hypothesis and patterns broadly noted elsewhere. Conclusions are drawn for theory, policy and international business.

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Article provided by Elsevier in its journal International Business Review.

Volume (Year): 14 (2005)
Issue (Month): 1 (February)
Pages: 97-115

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Handle: RePEc:eee:iburev:v:14:y:2005:i:1:p:97-115
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