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Unravelling the Complex Motivations behind China’s FDI

  • Zhang Yi
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    We empirically investigate the factors that drive China's outward FDI using dynamic panel methods for 27 countries from 1995 to 2002. Based on the literature review we test three hypotheses: comparative advantages in low wage countries, vertical integration towards resource and human capital abundant countries, and the transaction-enforcing FDI to complement exports. Our results provide strong support for the transaction-enforcing motive: China’s FDI follows exports. Next, only in the presence of exports, low income per capita is important arguably because low-income countries have a preference for Chinese low-cost exports. Finally, though this series we find no evidence of FDI to skill-abundant countries and no evidence that host market resources or governance matters.

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    File URL: http://dspace.library.uu.nl/bitstream/handle/1874/309434/09_02.pdf
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    Paper provided by Utrecht School of Economics in its series Working Papers with number 09-02.

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    Date of creation: Feb 2009
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    Handle: RePEc:use:tkiwps:0902
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    1. Jaideep Anand & Bruce Kogut, 1997. "Technological Capabilities of Countries, Firm Rivalry and Foreign Direct Investments," Journal of International Business Studies, Palgrave Macmillan, vol. 28(3), pages 445-465, September.
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    3. Ferrantino, Michael J., 1992. "Transaction costs and the expansion of Third-World multinationals," Economics Letters, Elsevier, vol. 38(4), pages 451-456, April.
    4. Lecraw, Donald J, 1977. "Direct Investment by Firms from Less Developed Countries," Oxford Economic Papers, Oxford University Press, vol. 29(3), pages 442-57, November.
    5. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
    6. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
    7. Oscar Bajo & Maria Montero Mu–oz, 1999. "Foreign Direct Investment and Trade: A Causality Analysis," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 9902, Departamento de Economía - Universidad Pública de Navarra.
    8. Cheng, Leonard K. & Kwan, Yum K., 2000. "What are the determinants of the location of foreign direct investment? The Chinese experience," Journal of International Economics, Elsevier, vol. 51(2), pages 379-400, August.
    9. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    10. Peter J Buckley & L Jeremy Clegg & Adam R Cross & Xin Liu & Hinrich Voss & Ping Zheng, 2007. "The determinants of Chinese outward foreign direct investment," Journal of International Business Studies, Palgrave Macmillan, vol. 38(4), pages 499-518, July.
    11. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
    12. Ju'e Guo, 1996. "Natural Resources and Economic Development in China," Chinese Economy, M.E. Sharpe, Inc., vol. 29(1), pages 5-21, January.
    13. Liu, Xiaohui & Buck, Trevor & Shu, Chang, 2005. "Chinese economic development, the next stage: outward FDI?," International Business Review, Elsevier, vol. 14(1), pages 97-115, February.
    14. Blonigen, Bruce A., 2001. "In search of substitution between foreign production and exports," Journal of International Economics, Elsevier, vol. 53(1), pages 81-104, February.
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