Has China Crowded out U.S. OFDI? An Empirical Research Based on Latin America and the Caribbean (LAC) in the Background of the Belt and Road Initiative

Abstract

This paper aims to study whether China’s OFDI has a significant crowding-out effect on the United States’ OFDI in Latin America and the Caribbean （LAC）, and to consider the impact of the Belt and Road Initiative. In the context of the strategic contraction of the United States and the active expansion of China’s global participation, western public opinion is worried about China’s rapidly expanding influence in LAC, the traditional sphere of influence of the United States. As OFDI is an important indicator of a country’s overseas economic activities, the study on whether China’s OFDI is crowding out the United States’ OFDI provides an important reference for judging the state of China-US relations in LAC. This paper uses a panel data set containing 35 LAC countries （regions） from 2003 to 2017, and divides the total sample into two sub-samples respectively according to the scale of natural resource abundance and government efficiency. Based on the gravity model, this paper uses the individual fixed effect model for empirical analysis, and the Spatial Durbin Model （SDM） to test the robustness of the regression results. The regression results of the individual fixed effect model show that, on the whole, every $1 increase in China’s OFDI will lead to a $2.23 increase in the United States’ OFDI. For resource-rich countries and regions, every $1 increase in China’s OFDI will lead to a $1.71 increase in the United States’ OFDI. For resource-poor countries and regions, China’s OFDI has no significant impact on the United States’ OFDI. For countries and regions with high-efficient governments, every $1 increase of China’s OFDI will lead to a $6.31 increase in the United States’ OFDI. However, if the host country and China sign a cooperation document to jointly build the Belt and Road, the promotion effect will be reduced to $0.04. For countries and regions with low-efficient governments, every $1 increase in China’s OFDI will lead to a $2.02 increase in the United States’ OFDI. Therefore, this paper concludes that in LAC, overall, China’s OFDI attracts the United States’ OFDI, and the Belt and Road Initiative has no significant negative impact on the United States’ OFDI, and also has no significant negative impact on the attraction of China’s OFDI to the United States’ OFDI. However, for resource-poor countries and regions in LAC, the positive impact on the attraction of China’s OFDI to the United States’ OFDI is insignificant. For countries and regions with high-efficient governments in LAC, the Belt and Road Initiative weakens the attraction of China’s OFDI to the United States’ OFDI. The regression results of SDM verify this conclusion. The results show that Chinese and American capital can coexist in LAC. In the future, these two countries can strengthen cooperation and deepen mutual trust under the framework of the Belt and Road Initiative, so as to eliminate the negative impact of the initiative on the United States’ OFDI in some countries and regions. This paper creatively takes the impact of the Belt and Road Initiative into account when studying the crowding-out effect of China’ OFDI, and empirically tests the conjecture that China’s ODFI has crowded out the United States’ OFDI in LAC through econometrics research. It enriches current research ideas in the field of OFDI.