Why has China invested heavily in countries with weak market environments? A new explanation and implications for China-Africa economic cooperation

Changyuan Luo and Zhitao Chen

China Economic Review, 2024, vol. 88, issue C

Abstract: This paper investigates why China has invested heavily in countries with weak market environments. We provide a theoretical hypothesis that experiences and abilities acquired by Chinese enterprises in dealing with incomplete market environments at home help them conduct investment abroad. We match many databases and use government work experience of executives to capture the enterprise's experiences and abilities. The results show that the government work experience of executives helps enterprises overcome the constraints of unfavorable market environments in the destination country, and this effect is strongly reflected in host countries where resources are scarce, wages are low, and patent stocks are limited. These research findings have important implications for economic cooperation between China and Africa. Chinese enterprises have grown in an incomplete market environment. The experience they have accumulated is helpful for expanding investment opportunities in the African market, which has a positive impact on bilateral economic cooperation.

Keywords: Market imperfections; Government work experience; Institutional environments; Outward FDI (search for similar items in EconPapers)
JEL-codes: C33 F21 F23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:88:y:2024:i:c:s1043951x24001342

DOI: 10.1016/j.chieco.2024.102245

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