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Is China's FDI coming at the expense of other countries?

  • Eichengreen, Barry
  • Tong, Hui

We analyze how China's emergence as a destination for foreign direct investment is affecting the ability of other countries to attract FDI. We do so using an approach that accounts for the endogeneity of China's FDI. The impact turns out to vary by region. China's rapid growth and attractions as a destination for FDI also encourages FDI flows to other Asian countries, as if producers in these economies belong to a common supply chain. There is also evidence of FDI diversion from OECD recipients. We interpret this in terms of FDI motivated by the desire to produce close to the market where the final sale takes place. For whatever reason -- limits on their ability to raise finance for investment in multiple markets or limits on their ability to control operations in diverse locations -- firms more inclined to invest in China for this reason are corresponding less inclined to invest in the OECD. A detailed analysis of Japanese foreign direct investment outflows disaggregated by sector further supports these conclusions.

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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 21 (2007)
Issue (Month): 2 (June)
Pages: 153-172

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Handle: RePEc:eee:jjieco:v:21:y:2007:i:2:p:153-172
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

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  1. Bruce A. Blonigen & Ronald B. Davies & Glen R. Waddell & Helen T. Naughton, 2004. "FDI in Space: Spatial Autoregressive Relationships in Foreign Direct Investment," NBER Working Papers 10939, National Bureau of Economic Research, Inc.
  2. Warwick J. McKibbin & Wing Thye Woo, 2003. "The Consequences of China's WTO Accession on its Neighbors," Departmental Working Papers 2003-17, The Australian National University, Arndt-Corden Department of Economics.
  3. Alan G. Ahearne & John G. Fernald & Prakash Loungani & John W. Schindler, 2003. "China and emerging Asia: comrades or competitors?," International Finance Discussion Papers 789, Board of Governors of the Federal Reserve System (U.S.).
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  5. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," William Davidson Institute Working Papers Series 63, William Davidson Institute at the University of Michigan.
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  7. Mody, Ashoka & Razin, Assaf & Sadka, Efraim, 2002. "The Role of Information in Driving FDI: Theory and Evidence," CEPR Discussion Papers 3619, C.E.P.R. Discussion Papers.
  8. James E. Anderson & Douglas Marcouiller, S.J., 1999. "Insecurity and the Pattern of Trade: An Empirical Investigation," Boston College Working Papers in Economics 418, Boston College Department of Economics, revised 03 Aug 2000.
  9. Benoît Mercereau, 2005. "FDI Flows to Asia; Did the Dragon Crowd Out the Tigers?," IMF Working Papers 05/189, International Monetary Fund.
  10. Vincent Palmade & Andrea Anayiotas, 2004. "FDI Trends : Looking Beyond the Current Gloom in Developing Countries," World Bank Other Operational Studies 11259, The World Bank.
  11. Henisz, Witold J, 2000. "The Institutional Environment for Multinational Investment," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 334-64, October.
  12. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
  13. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
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