Unravelling the Complex Motivations behind China’s FDI

Zhang Yi

No 09-02, Working Papers from Utrecht School of Economics

Abstract: 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.

Keywords: China; transaction-enforcing FDI; locational determinants (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-cna and nep-dev
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Citations: View citations in EconPapers (4)

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