China’s Outward Foreign Direct Investment: The Role of Natural Resources and Technology

Pan Wang and Zhihong Yu ()

Economic and Political Studies, 2014, vol. 2, issue 2, 89-120

Abstract: Using the data of China’s OFDI in more than 150 host countries or regions for the period of 1991-2009, in this paper we examine the underlying motivations and locational determinants of China’s OFDI, with a focus on the role of natural resources and technology. Our findings indicate that the host country’s natural resource abundance, interacted with its institutional quality, is a crucial determinant of China’s OFDI. There is strong evidence that in the recent period of 2003-2009, the host country’s overall natural resource abundance, oil abundance and metal abundance had a sizable positive effect on China’s OFDI. In particular, China’s OFDI was driven to resource-abundant countries with poor institutional quality and governance, and this pattern was strongest for oil but not metal resources. However, we find little evidence supporting the resource-seeking motivation in the pre-2003 period. Furthermore, we find strong evidence for the technology-exploiting motivation but not for the technology-seeking hypothesis. We show that, when the host is a low-income country, China’s OFDI increases if the host country’s technology is more backward, indicating that Chinese investors might be taking advantage of their technology gap relative to the local firms.

Date: 2014
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DOI: 10.1080/20954816.2014.11673846

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