Determinants of China’s outward foreign direct investment in Asia: a panel data analysis

Abstract

This paper is an attempt to examine the trends and significant determinants of China’s outward foreign direct investment (OFDI) in Asia. In order to find out the important determinants of China’s OFDI in Asia, this study applies the panel data regression technique. The time period from 2006 to 2015 is taken into consideration. Econometric analysis has been done based on three data sets: the first includes 27 Asian countries/regions which attract Chinese OFDI. While Chinese Hong Kong is excluded from the sample, the second data set consists of 26 countries the same as those in data set one. The third data set comprises China’s top 12 destination countries of OFDI in Asia. The findings show that China’s OFDI has risen rapidly and secured the second rank globally, only behind the United States and surpassing Japan. For the first time, the flow of Chinese OFDI exceeded the level of inward foreign direct investment (IFDI), and Asia attracted a 74.4% share out of China’s total OFDI in 2015. The results reveal that inflation rate, export, import, corruption, infrastructure and geographic distance are the significant determinants of China’s investment in Asia. This paper provides new evidence on the determinants of China’s OFDI in Asia. By using currently available data of 27 Asian host countries, this paper offers a new insight into significant determinants of China’s OFDI in the region.