Abstract
This study examines the extent to which existing foreign direct investment (FDI) theories apply to Chinese investment in the Belt and Road Initiative (BRI) countries. This is important because existing explanations of Chinese outward FDI (OFDI) generally make scant reference to these theories. By using OFDI data for BRI countries between 2003 and 2017, we tested hypothesizes applicable to existing theories by using both pooled ordinary least squares (PLOS) and stochastic frontier analysis (SFA) methods. The results show that a large part of the existing theories apply to Chinese OFDI. Chinese OFDI is likely to choose countries with big market size, abundant natural resources, cheap unskilled labor, stable politics, good infrastructure, high trade cost and high investment cost. These positive findings notwithstanding, they do not invalidate the alternative factors cited by commentators which have not been subject to direct testing, which may require the use of qualitative analytical approaches.
Highlights
These are the central role of the state and its state enterprises, its being a major source of outward FDI (OFDI) when most countries at a comparable level of development are focused on receiving inward foreign direct investment (FDI), and its OFDI flows to developed instead of developing countries [13,14]
The investment development path (IDP) theory assumes that with the development of the economy, the conditions for the domestic and foreign enterprises transform, which will affect the position of both inward and outward FDI [28] According to the theory, a country will experience five stages of development which result in the dynamic change of the ownership, location, and internalization advantages of enterprises
The analysis shows a strong positive relationship between natural resources and China’s OFDI at the 1% level, which means a 1% rise in the variable, increasing China’s outward investment by 0.15%, and the result confirms Hypothesis 5
Summary
The Silk Road Economic Belt aims to build a land channel from the Pacific Ocean to the Baltic Sea by improving cross-border infrastructure and international trade and capital Another component of the BRI is the 21st Century Maritime Silk Road which was proposed in October of 2013 when President Xi Jinping made a state visit to Indonesia and delivered a speech at the Indonesian Parliament. China makes for an interesting study to test existing FDI theories given that it has several distinctive features These are the central role of the state and its state enterprises, its being a major source of OFDI when most countries at a comparable level of development are focused on receiving inward FDI, and its OFDI flows to developed instead of developing countries [13,14].
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