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The Giant Sucking Sound: Is China Diverting Foreign Direct Investment from Other Asian Economies?

Listed author(s):
  • Busakorn Chantasasawat

    (East Asian Institute National University of Singapore)

  • K. C. Fung

    (Professor of Economics Santa Cruz Center for International Economics (SCCIE) University of California, Santa Cruz and Senior Research Fellow Hong Kong Institute of Economics and Business Strategy (HKIEBS) The University of Hong Kong)

  • Hitomi Iizaka

    (Hong Kong Institute of Economic and Business Strategy (HKIEBS) The University of Hong Kong)

  • Alan Siu

    (School of Economics and Finance The University of Hong Kong)

This paper attempts to determine empirically whether China is taking foreign direct investment (FDI) away from other Asian economies (the "China effect"). A random-effects simultaneous equation model, controlling for the determinants of inward FDI of eight East and Southeast Asian economies over 1985-2001 and using China's inward FDI as an indicator of the China effect, indicates that China's FDI level is positively related to these economies' FDI levels and negatively related to their shares in FDI in Asia. Moreover, openness, corporate tax rates, and corruption can exert a greater influence on these countries' FDI than China's FDI. Copyright (c) 2005 Center for International Development and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Asian Economic Papers.

Volume (Year): 3 (2004)
Issue (Month): 3 ()
Pages: 122-140

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Handle: RePEc:tpr:asiaec:v:3:y:2004:i:3:p:122-140
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