Do China's Outward Direct Investors Prefer Countries with High Political Risk? An International and Empirical Comparison

Jiann-jong Guo, Guo-chen Wang and Chien-hung Tung

China & World Economy, 2014, vol. 22, issue 6, 22-43

Abstract: This paper focuses on a conventional debate regarding whether Chinese outward direct investors tend to invest in countries with high political risk. Using 2003–2011 data from the World Bank, the Heritage Foundation and the KOF Swiss Economic Institute, we investigate China's political risk distribution and political risk index (PRI). Our results indicate that China's political risk index was ranked 48th among 153 economies in 2011, in the lower risk level of the PRI spectrum. In an international comparison of political risk distribution, the proportion of Chinese outward direct investment (ODI) among countries with high political risk is less than the world average. The Chinese ODI political risk index has significantly improved and remains lower than the world average. To improve Chinese ODI PRI, the Chinese Government should continue to implement differentiation strategies and to offer official development assistance to improve the investment environment in developing countries and reduce political risk.

Date: 2014
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