Tracing paths to internationalisation: historical trajectories, ownership advantages and outward FDIs from Shanghai and Shenzhen

The Growth Impact of Chinese Direct Investment on Host Developing Countries

Green economic development is a worldwide concern. This paper not only contributes to the advancement of studies pertaining to green development but also offers policy recommendations for China to achieve a green and low-carbon economic transformation from the perspective of outward foreign direct investment (OFDI) and industrial structure. A mechanism for the effects of OFDI and industrial structure upgrading on green total factor productivity (GTFP) is proposed in this study. Based on measurement and analysis of the evolution characteristics of GTFP and industrial structure level of 30 provinces (municipalities and autonomous regions) in China from 2004 to 2019, the spatial Durbin model is applied to test their spatial effects. The findings demonstrate that (1) the overall trend of China’s GTFP and industrial structure level is upward, with obvious regional non-equilibrium and spatial dependence; (2) both OFDI and industrial structure upgrading can promote green development independently, with the spatial spillover effect of Industrial structure advancement being more evident; (3) the synergistic effect between OFDI and industrial structure advancement is greater than that between OFDI and industrial structure rationalization, and the spatial spillover effect on regions with comparable economic development is greater than that of surrounding regions; (4) in view of the different levels of openness between regions, the independent and synergistic effects in coastal regions and non-coastal regions are heterogeneous. Therefore, China should optimize OFDI, promote the efficiency of resource allocation, maximize the technology spillover, and strengthen interregional cooperation in order to transform towards a green economy.

The investment development path (IDP) was provided by Dunning (1981, 1986) as a framework for understanding the dynamic interaction between foreign direct investment (FDI) and the level of economic development of a given country (Dunning and Nar ula, 1996). It has been used in a range of theoretical and empirical studies across the world (see reviews by Boudier- Bensebaa, 2008; Narula and Dunning, 2010; Narula and Guimón, 2010). Basically, it assumes that the conditions for domestic and foreign companies change along with the change in the level of country development, thereby affecting the flows of inward and outward FDI. Inward flows interact with the upgrading of the country’s location advantages, while outward flows do so with the development of domestic firms’ ownership advantages. The difference between outward and inward FDI stocks constitutes the country’s net outward investment position (NOIP). The concept suggests that, as countries develop, they go through five distinct stages (Dunning, 1986; Dunning and Lundan, 2008). The most important stages from the point of view of this study are the third and fourth stages representing an innovation-driven economy and a knowledge-based economy, respectively.KeywordsEuropean UnionForeign Direct InvestmentGross Domestic ProductForeign Direct Investment InflowOutward Foreign Direct InvestmentThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Numerous studies have explored the impact of Outward Foreign Direct Investment (OFDI) on upgrading industrial structures in home countries. However, a notable gap exists in the literature regarding the reverse relationship. Based on the cross-border greenfield investment data of Chinese provinces in Association of Southeast Asian Nations (ASEAN) countries from 2003 to 2021, this study employed the Ordinary Least Squares (OLS) model to evaluate the impact of industrial upgrading in each province on OFDI to address this gap. The findings suggest that China’s industrial structure upgrading significantly promotes OFDI toward ASEAN countries, though the effect varies by region within China and by the income levels of host countries. Regionally, industrial upgrading in eastern China notably stimulates OFDI growth, while the effect is not significant in the central and western regions, reflecting inconsistent evolution of industrial structures in various regions. Regarding host country income levels, the promotion effect of industrial structure upgrading on OFDI is influenced by the economic development level of the host country. Furthermore, we find that R&D intensity acts as a moderator that links industrial structural upgrading to OFDI responses. These findings withstand robustness checks, including tests for endogeneity. Ultimately, this study provides policy insights for strengthening the virtuous cycle between industrial upgrading and OFDI.

Intellectual property rights protection (IPRP) has caused great concern in China, especially since the introduction of the Belt and Road (B&R) initiative. The Chinese government has increased investments to the countries along the B&R, most of which are developing countries with high investment risks. Using the panel data of China’s outward foreign direct investment (OFDI) in 121 countries from 2003 to 2017, the sustainable relationships between the IPRP of host countries and China’s OFDI has been analyzed. The results of this paper show that, from the worldwide perspective, the stronger the IPRP of the host country, the greater attraction to China’s OFDI. While the IPRP of the countries along the B&R has a nonlinear U-shaped effect on China’s OFDI, which is related to the complex environments of the countries. When the IPRP of the B&R countries is within a certain range, China’s OFDI is biased toward a country with lower IPRP, and when the IPRP exceeds a certain range, China’s OFDI is biased toward a country with higher IPRP. Moreover, the market size, natural resources endowment and political environment of the host country are influential upon China’s OFDI as well. What deserves our attention is that China’s OFDI is more biased towards countries with poor political conditions, which can be related to the enterprise type and that most of the large multinational enterprises in China are state-controlled, resulting in investment decisions largely reflected by the national political goals rather than simple market targets.

Purpose This study investigates the causal impact of pilot free trade zones (PFTZs) on Chinese outward foreign direct investment (OFDI). Design/methodology/approach The study uses the concept of ownership advantage (OA) to derive the conceptual link between PFTZs and OFDI. Using Chinese provincial data from 2003 to 2022, the study employs various difference-in-difference estimators to estimate homogeneous and heterogeneous treatment effects. Findings Assuming a homogeneous treatment effect on the treated, implementing a PFTZ spurs OFDI. However, considering heterogeneity in treatment effects over cohorts and time diminishes the evidence for a positive impact. A positive causal effect on OFDI is established only for the Shanghai (China) PFTZ. Practical implications As China is a leading emerging economy with a state-driven development model, this study has significant implications for other developing and middle-income countries seeking to leverage PFTZs – or similar special economic zones – to stimulate OFDI. Originality/value This study conceptually links PFTZs to OFDI through the OA framework and explicitly models heterogeneity of effects across batches of PFTZs and over time. The latter is essential, as institutional differences across PFTZs may result in varying degrees of generation and overseas exploitation of OAs.

The improvement in the economic environment and the implementation of the “bring in and go global” strategy have had an impact on China's economic development and the optimization of its economic structure. The decline of Chongqing's traditional pillar industries has made the promotion of economic structure upgrading a key to economic development. The purpose of this paper is to study the role of two-way foreign direct investment (FDI) in industrial structure upgrading. This paper is designed to study the effect of outward foreign direct investment (OFDI) and inward foreign direct investment (IFDI) on the industrial structure upgrading from both theoretical and empirical perspectives. This study selects data from Chongqing from 1987 to 2022 and uses Stata 17.0 software for empirical analysis, based on Chenery’s “standard structure” industrial change model. The research findings show that OFDI and IFDI have a significant positive impact on the intensification and servicification of Chongqing's industrial structure and are significant at the 0.01 level. OFDI and IFDI have a significant positive impact on the rationalization of Chongqing's industrial structure and are significant at the 0.05 level. This means that two-way FDI has a positive effect on the optimization of industrial structure. The practical implication of this study is that it provides a realistic basis for Chongqing to fully leverage the advantages of international direct investment and promote the optimization and upgrading of the industrial structure, which also has enlightening significance for China’s economic structure reform.

Non-linear effects of outward foreign direct investment on total factor energy efficiency in China

The growth of China's OFDI (outward foreign direct investment) is a unique feature of the "Belt and Road" project. Does China's OFDI have a green halo effect on countries along the Belt and Road (B&R)? Is this green halo effect somehow asymmetrical? What is the underlying mechanism? This paper systematically examines how China's OFDI exerts its influence on green technology spillovers, based on 56 B&R countries' 2003-2019 panel data. This study makes three significant findings: Firstly, China's OFDI has positive asymmetric characteristics in promoting green technology spillovers to host countries mentioned, which have lower income levels and openness. Secondly, strict relative environmental regulation can act as a "pressure pool," significantly enhancing the "green halo effect"; Thirdly, China's OFDI can help host countries obtain more green technology spillovers through three channels: expanding host countries' economic scale, upgrading host countries' industrial structure, and suppressing host countries' use of non-renewable energy. These findings point the way for 56 host countries to better accessing green technology spillovers.

The Mainstream School of Advantages Theories of FDI holds the core thought that the internalization advantage based on the ownership advantage is the decisive factor and condition for outward FDI, and it reveals the rule and condition for a country to turn into an outward FDI power. China has made great progress in outward FDI, but there are still defects in terms of overall scale, industrial distribution and performance in China's outward FDI. China should follow the Mainstream School of Advantages Theories of FDI, paying special attention to the breeding and strengthening of ownership and internalization advantages, so that China can turn into an outward FDI power.

Geographic clustering and outward foreign direct investment

Purpose This paper aims to examine the role of home country institutions and firm adaptability in enhancing outward foreign direct investment (OFDI) from emerging economies. This paper first considers the direct effects of firm adaptability and home country institutions. This paper then examines whether and how the strength of home country institutions moderates the effect of firm adaptability. Design/methodology/approach The paper opted for a quantitative research design using panel data analysis of 36 countries over 27 years, employing the random effects generalised least squares estimator. Findings The paper provides empirical evidence suggesting that adaptability increases OFDI. However, it also finds that home-country institutions negatively moderate the effect of adaptability on OFDI from emerging economies. Research limitations/implications The findings suggest that governments of emerging economies should be aware that institutional reforms alone do not increase OFDI. Instead, it is the ability of firms to develop both non-traditional and traditional ownership advantages (OAs) that enhances OFDI. A limitation is that this study uses aggregate data, which does not account for differences between the home and host country institutions, which is possible using bilateral flows of FDI. Practical implications The paper includes implications for institutional reforms in emerging economies and their impact on the importance of non-traditional OAs of emerging market firms. Originality/value This paper shows that the adaptability of emerging market firms is positively related to OFDI. However, this paper shows that the strengthening of home-country institutions reduces EMNEs’ reliance on adaptability as a non-traditional OA.

Multinational companies (MNCs) based in 26 post-communist transition economies (PTEs) emerged during the 1990s. Their outward foreign direct investment (OFDI) boomed dramatically from 2000 to 2007 in these countries, and then muddled through the financial crisis and great recession at difference paces on different paths. This difference is revealed in a sample of 15 PTEs for which data are available from 2000 to 2015. Most of these economies appear to be on the brink of moving from the second to the third stage of Dunning's investment development path. The geographical distribution of their OFDI favors host countries located in other PTEs, developed market economies, and tax havens while their industrial structure is more concentrated on services rather than on manufacturing and the primary sector. PTE-based MNCs primarily adopt a strategy of market-seeking OFDI. Econometric testing shows that push factors are major determinants of OFDI. The results demonstrate that OFDI is determined by the home country's level of economic development, the size of its home market, and its rate of growth as well as technological variables: OFDI decreases with an increase in the number of scientists in the home economy and with an increase in the share of high-tech products in overall exports, exhibiting a negative technological gap. A lagged relationship between OFDI and previous inward FDI suggests that Mathews’ linkage-leverage-learning theory is relevant in the case of PTEs.

Under the "Going out" strategy and the Belt and Road Initiatives, the trade in goods and services and flow of production factors between China and the rest of the world have become more frequent, and the total amount of outward foreign direct investment (OFDI) is considerable and growing significantly. Therefore, along with the extensive economic growth and the substantial growth of foreign investment, the environmental impact of OFDI has become noteworthy. Here, through theoretical analysis and logical deduction, three possible pathways of the impact of OFDI in China on the environment were presented as hypotheses, which included the industrial structure, the technological innovation progress, and the economic-scale expansion. Using Chinese provincial data from 2004 to 2019, an environmental load index including main environmental pollutant emissions and carbon emissions was constructed. Taking this as the dependent variable, an intermediary effect method was constructed to analyze the home pollution and carbon reduction effect and the influence mechanism of OFDI in China. The results showed that ① OFDI in China reduced the environmental load, and each 1% increase in OFDI reduced the environmental load by 0.051%-0.076%. ② The OFDI in China reduced the environmental load by advancing the industrial structure and technological innovation progress, and a 1% increase in OFDI resulted in a 0.060% and 0.006% reduction in environmental load through their indirect effects, respectively, whereas OFDI increased the environmental load by 0.009% through the path of economic-scale expansion. The contributions of leading environmental load changes mediated by advancing industrial structure, technological innovation progress, and economic-scale expansion were 65.9%-84.5%, 6.6%-8.5%, and -12.7%- -9.9%, respectively, and the contribution of OFDI directly driving the environmental load to change was 19.7%-37.4%. Based on this, policy recommendations, including promoting Chinese enterprises and capital going abroad, encouraging relatively disadvantaged domestic industries to explore foreign markets, strengthening reverse technology spillover effects, and forming a sustainable low-carbon development mode, have been proposed.

Outward foreign direct investment from emerging economies: escaping home country regulative voids