Two solution methods on foreign direct investment outflow model

Abstract

We in this paper study Taiwanese foreign direct investment (FDI) outflow to China based on the dynamic growth theory. Two solution methods are used to study the evolution of outward FDI. The underlying outward FDI growth model is constructed as a differential equation. It is then solved by an analytical and a numerical method, respectively. Taking the data of Taiwanese electronics industry outflow to China for example, if the potential market is constant; the two solution techniques work well; while the numerical solution technique has more superior if the potential market is varying with time. Moreover, we find that the external influence through the communication of the host country is the key factor of Taiwanese FDI outflow during 2001–2006.