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Is China taking away foreign direct investment from other Asian economies?: An analysis of Japanese, US and Korean FDI

  • Salike, Nimesh

This paper applies the dynamic panel model to investigate whether China is crowding- out FDI from other Asian economies. In addition to an analysis of aggregate FDI like prior studies, an investigation is carried out for FDI from three major investors in the region: Japan, the United States and Korea. It order to deal with possible problems of serial correlation and simultaneous causality bias, refined estimation techniques; namely, Arellano Bond and Instrumental Variable estimations were undertaken. We found that the study on aggregate FDI did not produce any evidence on so called crowding- out of FDI by China, which is consistent with other studies. In FDI source country specific analysis, we did not find any “China effect” on Japanese and Korean FDI. However, the analysis of US FDI found that FDI in China had positive impact on FDI to other Asian economies. These findings led us to conclude that the rise of China could be seen as an opportunity rather than threat in attracting FDI for other Asian economies in the region.

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File URL: http://mpra.ub.uni-muenchen.de/26583/1/MPRA_paper_26583.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26583.

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Date of creation: Apr 2009
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Handle: RePEc:pra:mprapa:26583
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  1. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  2. Eichengreen, Barry & Tong, Hui, 2007. "Is China's FDI coming at the expense of other countries?," Journal of the Japanese and International Economies, Elsevier, vol. 21(2), pages 153-172, June.
  3. Benoît Mercereau, 2005. "FDI Flows to Asia; Did the Dragon Crowd Out the Tigers?," IMF Working Papers 05/189, International Monetary Fund.
  4. Ligang Liu & Kevin Chow & Unias Li, 2007. "Has China Crowded out Foreign Direct Investment from Its Developing East Asian Neighbors?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 15(3), pages 70-88.
  5. James Alm & Jorge Martinez-Vazquez & Dana Weist & Dana Weist, 2004. "Introduction," Chapters, in: Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia, chapter 1 Edward Elgar.
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