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

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  • 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)

Abstract

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.

Suggested Citation

  • Busakorn Chantasasawat & K. C. Fung & Hitomi Iizaka & Alan Siu, 2004. "The Giant Sucking Sound: Is China Diverting Foreign Direct Investment from Other Asian Economies?," Asian Economic Papers, MIT Press, vol. 3(3), pages 122-140.
    • Handle: RePEc:tpr:asiaec:v:3:y:2004:i:3:p:122-140
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    1. repec:zbw:bofitp:2008_009 is not listed on IDEAS
    2. Katiuscia Vaccarini, 2014. "Psychic distance and FDI: the case of China," Working Papers 1403, c.MET-05 - Centro Interuniversitario di Economia Applicata alle Politiche per L'industria, lo Sviluppo locale e l'Internazionalizzazione.
    3. Fung , K.C. & Korhonen, Iikka & Li, Ke & Ng, Francis, 2008. "China and central and eastern European countries : regional networks, global supply chain, or international competitors?," Policy Research Working Paper Series 4689, The World Bank.
    4. Fung, K. C., 2005. "Trade and Investment among China, the United States, and the Asia-Pacific Economies: An Invited Testimony to the U.S. Congressional Commission," Santa Cruz Center for International Economics, Working Paper Series qt0nt943kp, Center for International Economics, UC Santa Cruz.
    5. K. C. Fung & Alicia Garcia‐Herrero & Hitomi Iizaka & Alan Siu, 2005. "Hard Or Soft? Institutional Reforms And Infrastructure Spending As Determinants Of Foreign Direct Investment In China," The Japanese Economic Review, Japanese Economic Association, vol. 56(4), pages 408-416, December.
    6. Michael G. PLUMMER & David CHEONG, 2009. "Fdi Effects Of Asean Integration," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 29, pages 49-67.
    7. Julian Donaubauer & Christian Dreger, 2018. "The End of Cheap Labor: Are Foreign Investors Leaving China?," Asian Economic Papers, MIT Press, vol. 17(2), pages 94-107, Summer.
    8. Fung , K.C. & Korhonen, Iikka & Li, Ke & Ng, Francis, 2008. "China and central and eastern European countries : regional networks, global supply chain, or international competitors?," Policy Research Working Paper Series 4689, The World Bank.
    9. Sakli Hniya & Ahlem Boubker & Fatma Mrad & Sawssen Nafti, 2021. "The Impact of Real Exchange Rate Volatility on Foreign Direct Investment Inflows in Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 11(5), pages 52-67.
    10. Paul De Grauwe & Zhaoyong Zhang & Chan-Hyun Sohn, 2016. "The Effect of China's Rise on FDI Competition in East Asia: Crowding-out or Crowding-in?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(1), pages 110-134, February.
    11. de Boyrie Maria E, 2010. "Structural Changes, Causality, and Foreign Direct Investments: Evidence from the Asian Crises of 1997," Global Economy Journal, De Gruyter, vol. 9(4), pages 1-40, January.
    12. Resmini, Laura & Siedschlag, Iulia, 2013. "Is foreign direct investment to China crowding out the foreign direct investment to other countries?," China Economic Review, Elsevier, vol. 25(C), pages 1-16.

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