Solving Chinese outward foreign direct investment puzzle: The effects of geopolitical risks on Chinese outward foreign direct investment into Eastern European countries

Tao Song and Andrzej Cieślik

Politická ekonomie, vol. preprint

Abstract: We investigate the effects of geopolitical risks on China\\\'s outward foreign direct investment (OFDI) into the Central and Eastern European countries (CEECs). We employ the Poisson Pseudo Maximum Likelihood with the High-Dimensional Fixed Effects and use country level panel data from 2003 to 2022. Chinese OFDI stocks are differentiated by geopolitical risk and economic factor motives. We find both geopolitical risk and economic factor determine Chinese OFDI. In terms of specific countries, Chinese OFDI into Hungary and Serbia as well as three Baltic countries has a stronger geopolitical-seeking motive; while Chinese FDI into the rest of CEECs has a weaker geopolitical-seeking motive. Neighboring with Ukraine or Russia deters Chinese OFDI to their direct neighbors. However, this effect decreases for a broader European market potential. We recommend that China can invest different resources and implement an OFDI screening process to balance geopolitical influences.

Keywords: Geopolitical risk; economic factor; foreign direct investment; gravity model; economic potential; market access (search for similar items in EconPapers)
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DOI: 10.18267/j.polek.1554

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