Is China's FDI Coming at the Expense of Other Countries?

Barry Eichengreen () and Hui Tong ()

No 11335, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze how China's emergence as a destination for foreign direct investment is affecting the ability of other countries to attract FDI. We do so using an approach that accounts for the endogeneity of China's FDI. The impact turns out to vary by region. China's rapid growth and attractions as a destination for FDI also encourages FDI flows to other Asian countries, as if producers in these economies belong to a common supply chain. There is also evidence of FDI diversion from OECD recipients. We interpret this in terms of FDI motivated by the desire to produce close to the market where the final sale takes place. For whatever reason -- limits on their ability to raise finance for investment in multiple markets or limits on their ability to control operations in diverse locations -- firms more inclined to invest in China for this reason are corresponding less inclined to invest in the OECD. A detailed analysis of Japanese foreign direct investment outflows disaggregated by sector further supports these conclusions.

JEL-codes: F0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-int, nep-sea and nep-tra
Date: 2005-05
Note: ITI
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Journal Article: Is China's FDI coming at the expense of other countries? (2007)
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