Chinese OFDI responses to the B&R initiative: Evidence from a quasi-natural experiment

Xu Shao

China Economic Review, 2020, vol. 61, issue C

Abstract: Based on an exogenous quasi-natural experiment, combined with administrative data from International Trade Statistics and the China Global Investment Tracker database, this study uses a difference-in-differences approach to examine whether the Belt and Road Initiative (BRI) can help alleviate the negative effect of political risks in host countries on Chinese outward foreign direct investment (OFDI). The empirical findings are as follows. a) When controlling for firm-level and country-level variables and various fixed effects, high-level international political cooperation under the BRI can considerably increase Chinese OFDI. b) Political risks in host countries significantly reduce Chinese investment and increase losses, and the BRI mainly stimulates investment through mechanisms that seek to reduce policy uncertainty and political risks in host countries for Chinese firms. c) By further considering the gain (or loss) status of Chinese investment projects, the study shows that the BRI has a limited role in reducing investment losses. The study also performs a series of robustness tests to eliminate the influence of firm heterogeneity, informal political interference, and random effects. The overall results are consistent with those of the quasi-experiment.

Keywords: Outward FDI; The belt and road initiative; Political risks; Chinese firms; International policy cooperation (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:61:y:2020:i:c:s1043951x20300328

DOI: 10.1016/j.chieco.2020.101435

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