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ID: 147614

Dynamic relationship between China's inward and outward foreign direct investments / Yao, Shujie; Wang, Pan ; Zhang, Jing ; Ou, Jinghua

Yao, Shujie	Journal Article
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Summary/Abstract

This paper studies the dynamic relationship of China's inward and outward foreign direct investments (FDI). It first identifies the key determinants of China's outward FDI (OFDI) in 172 host countries during 2003–2009 using a partial stock adjustment model. It finds strong evidence of dynamic adjustment in China's OFDI stock with an agglomeration effect. The dynamic adjustment and agglomeration effects are stronger in “high-tech” countries than in “low-tech” ones but indifferent in host country's resource endowments and income levels. The empirical results suggest that there exists a substantial adjustment cost in China's OFDI and that China's existing OFDI stock can gradually adjust toward its long-term equilibrium level, which is not only greater but also more volatile than the actual stock. Of particular interest is that we find a strong and positive relationship between lagged inward FDI (IFDI) and contemporaneous OFDI, implying that capital outflow from China has been partially induced by the countries which have invested in China.

Key Words

China ; Foreign Direct Investment ; Dynamic Adjustment ; Agglomeration Effect ; Partial Stock Adjustment

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ID: 130538

Has China displaced the outward investments of OECD countries? / Yao, Shujie; Wang, Pan

Yao, Shujie	Journal Article
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2014.

Summary/Abstract

As China has rapidly emerged as one of the world's largest investors abroad, there has been a hectic debate in the literature on whether its emergence as a major foreign investor may have undermined the importance of western industrialised economies, including those in the Organisation for Economic Cooperation and Development (OECD). This paper aims to investigate whether this is the case. The study uses a panel dataset covering 155 countries, including 33 in the OECD, where China had invested during 2003-09. This is by far the most comprehensive dataset of China's outward foreign direct investment (OFDI). A two-stage least squared (TSLS) regression approach is adopted for our econometric models according to an established augmented gravity model in the literature. The empirical results show clear evidence that China's OFDI displaces that of the OECD countries, but the argument that China's emergence is a 'new colonialism' is not supported as OECD countries' OFDI in resource abundant host countries, particularly that in Africa and Latin America, does not appear to have been displaced by China's OFDI.

Key Words

China ; Chinese Economy ; Economic Strategy ; Foreign Direct Investment - FDI ; Organisation for Economic Cooperation and Development - OECD ; New Colonialism ;
Two-Stage Least Squared - TSLA ; Outward Foreign Direct Investment - OFDI ; Economic Policy

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