The impact of China’s outward foreign direct investment on its export similarity with belt and road countries

Abstract

This study investigates the impact of China’s outward foreign direct investment (OFDI) on the export similarity (EXSI) between China and the countries along the Belt and Road by using an unbalanced panel dataset involving 64 Belt and Road countries (BRCs) from 2003 to 2018. The empirical analysis indicates that China’s OFDI has a positive impact on the EXSIs of commodities as a whole. Specifically, it finds that Chinese OFDI has a positive impact on the EXSI of primary products but has a negative impact on the EXSIs of resource-based manufactures, low-technology manufactures, and medium-skill/high-skill and technology-intensive manufactures. Furthermore, by classifying the BRCs into resource-rich, low-income, and high-income groups, we find that China’s OFDI reduces the EXSIs of resource-intensive manufactures in resource-rich BRCs, low-technology manufacturesin low-income BRCs, and high-skill and technology-intensive manufactures in high-income BRCs. This finding is generally consistent with the resource endowments and comparative advantages of China and the BRCs. In addition, we find that since the launch of the Belt and Road Initiative, China’s OFDI has not only increasingly fostered the export dissimilarity (specialisation) of resource-intensive manufactures and labour-intensive manufactures between China and BRCs but also promoted the export upgrading of BRCs.