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

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.