Outward Foreign Direct Investment In China Research Articles

Outward foreign direct investment, green financial development, and green total factor productivity: evidence from China.

Prevailing research suggests reverse green technology spillovers from outward foreign direct investment (OFDI) significantly impact the green total factor productivity (GTFP) of the home country. However, the contribution of OFDI may depend on the home country's absorptive capacity. Based on panel data of 30 provinces in China from 2005 to 2019, this study constructs a generalized method of moments (GMM) model and a dynamic threshold panel model to empirically investigate how green financial development influences the impact of OFDI on the GTFP of the home country. We found that green financial development plays a positive moderating role in the impact of OFDI on GTFP in home country. The results also show the impact of OFDI on GTFP has a significant single-threshold effect on green financial development. Only when green financial development reaches a certain level can OFDI significantly promote GTFP of the home country. Moreover, regional heterogeneity exists in the moderating effect of green financial development. Given the ongoing growth of China's OFDI, it is vital to decide on a proper green financial development policy to improve the reverse spillover effect of OFDI firms on the nation's GTFP. The empirical analysis suggests that policymakers should build a multilevel green financial system to allocate financial resources and maximize the reverse spillover effect of OFDI.

Influence of renewable energy infrastructure, Chinese outward FDI, and technical efficiency on ecological sustainability in belt and road node economies

Renewable energy infrastructure is highly interrelated to environmental sustainability and the accomplishment of sustainable development goals. A significant portion of China's outward foreign direct investment (FDI) has been allocated to energy production and transmission across the Belt and Road Initiative (BRI) region. Therefore, we examine the influence of renewable energy infrastructure, China's outward FDI, and the host country's technical efficiency on ecological sustainability. This research uses the cross-sectional autoregressive distributive lag (CS-ARDL) model to address the issues of parameter and cross-sectional heterogeneity. The findings show that renewable energy infrastructure and technical efficiency significantly reduce carbon emissions in the long run. Likewise, FDI inflows and economic growth increase emissions in the BRI region due to higher energy consumption. Moreover, the direct effect of FDI on environmental quality is negative, while the indirect impact through moderation of FDI and renewable energy infrastructure leads to lower emissions. These results implied that the reallocation of inward FDI in energy infrastructure neutralizes the negative consequences, improves energy efficiency, and resultantly lower emissions. Therefore, it opens new policy implications that we focus more on investing FDI in the energy infrastructure sector.

Labor protection, labor costs, and China's outward foreign direct investment

Considering the 2008 Labor Contract Law as a quasi-natural experiment, this paper constructs a double difference model to examine the relationships among labor protection, labor costs, and China's outward foreign direct investment (OFDI). First, we theoretically study the mechanism of the impacts of labor protection. Then, we empirically confirm that the 2008 Labor Law significantly increased China's OFDI, and that this effect is heterogeneous among different firms. Our empirical evidence further suggests that the law increased the probability of Chinese enterprises' OFDI by increasing firms' wages, fixed labor costs, and the level of labor protection.

Host country’s financial condition and FDI inflow: evidence from China

PurposeThis paper investigates how the gap between the host country's actual and optimal financial conditions affects foreign direct investment (FDI) inflows through evidence from China.Design/methodology/approachThe authors first employ principal component analysis (PCA) to measure FDI target countries' actual financial conditions and use 30 OECD countries as a reference group to assess the optimal financial condition. The authors then estimate a two-way fixed effect model with panel data of China's outward FDI in 64 countries for the period 2003–2017 to get the regression results. The authors' results overcome endogeneity and are robust.FindingsResults show that (1) the gaps between host countries' actual and optimal financial conditions positively affect FDI inflows from China; (2) there is a heterogeneous effect between low-income and high-income countries. The gaps for high-income countries significantly increase FDI inflows from China, while the gaps are not significant for low-income countries.Research limitations/implicationsThe authors examine how the gap affects FDI inflows from China. An increase of 1% in the target country's gap promotes a 6.3% increase in FDI inflows. However, the authors do not explore what mechanisms are key to these results. The authors will explore these questions in the future.Originality/valueThis paper complements the influence factors of FDI and enriches theories of FDI. The gap between actual and optimal financial conditions plays an essential role in FDI flows across countries for policymakers.

Emigration and outward FDI in China: Key role of institutional quality

Using the cross-sectional data of 111 destination countries related to China, this paper examines whether institutional quality matters for the nexus between Chinese emigration and outward foreign direct investment (FDI) in destination countries. The empirical results demonstrate that institutional quality amplifies the positive effect of Chinese emigration on outward FDI, even after accounting for potential endogeneity with an instrumental variable approach using the 2SLS estimation. Specifically, the political stability and absence of violence/terrorism, government effectiveness, the rule of law, and control of corruption will positively moderate the emigrate-FDI relationship.

Pollution and Carbon Reduction Effect of OFDI in China and Its Mechanism

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.

Overseas industrial parks and China's outward foreign direct investment

We manually collect data on China's overseas industrial parks from 2007 to 2018, and match it with data on the country’s outward foreign direct investment (OFDI), using the system generalized method of moment (system GMM) approach to test how constructing overseas industrial parks affects China's OFDI. The results indicate that each new overseas industrial park established significantly increases China's OFDI by 2.89%. And the effect only exists in non-high-income host countries, rather than high-income host countries. We also investigate the effects of different types of industrial parks, and find that agricultural, light industrial, high-tech, comprehensive and heavy industrial parks have significant effects, while logistics parks do not. The mechanism analysis suggests that establishing overseas industrial parks increases China’s OFDI by reducing host countries’ economic and financial risks, and improving bilateral political relations. We further find that establishing overseas industrial parks is more likely to promote OFDI in host countries with imperfect infrastructure, impeded capital flows and low levels of unimpeded information. Our findings shed light on how developing countries could enlarge and stabilize OFDI.

China's OFDI and the economic growth: From the perspective of natural resource

AbstractUsing a country‐level panel data set of China's outward foreign direct investment (OFDI) during 2003–2015, we find that China increases its direct investment in an economy endowed with natural resources, which increases the exports of the resources to China. Facilitated by the industry‐level data between 2003 and 2008, we further show that the increase of China's OFDI in the economies abundant in natural resources would boost the output of Chinese industries which use the resources intensively but shrink the industries that are less intensive in the resources. These findings are consistent with the Rybczynski theorem and suggest that China's OFDI increases its domestic supply of natural resources.

The Belt and Road Initiative, political involvement, and China's OFDI

AbstractThe Belt and Road Initiative (BRI) is an important strategy for China. This study examines the effect of political involvement on firms' outward foreign direct investment (OFDI) in belt‐road countries after the BRI. Using merged Chinese nonfinancial listed firm data, the fDi Markets database, and the Thomson One database (formerly known as SDC Platinum) for the period 2008–2018, we find that political involvement has positive effect on firms' OFDI in belt‐road countries after the BRI. Furthermore, we find that the positive effect is heterogeneous across state‐owned enterprises (SOEs) and non‐SOEs. Political involvement has a positive effect on M&A for SOEs and Greenfield investment for non‐SOEs in belt‐road countries after the BRI. Our findings suggest that political involvement promotes firms' OFDI in belt‐road countries after the BRI and is helpful to the macro‐policy implementation.

Club convergence in energy efficiency of Belt and Road Initiative countries: The role of China’s outward foreign direct investment

Countries along with the Belt and Road Initiative (BRI) differ in geographical location, technological levels, and resource endowment. It is worth paying attention to the evolution of the gap in energy efficiency of BRI countries. Therefore, this study investigated club convergence in total-factor energy efficiency (TFEE) of BRI countries, and the role of China's outward foreign direct investment (OFDI) in TFEE convergence, by adopting panel data over 1996–2019. Results indicate that the TFEE of the BRI countries showed a trend of divergence as a whole, but converged to three convergence clubs with different characteristics of 1) high TFEE and convergence rates (20 countries); 2) middle TFEE and convergence rates (13 countries), 3) low TFEE and convergence rates (27 countries). We also found that China's OFDI in low-carbon industries in BRI countries contributed to the convergence of clubs with high energy efficiency and convergence rates. Moreover, China's OFDI in high-carbon industries showed a pollution halo effect, causing lower energy efficiency countries to converge to the high energy efficiency and convergence rate club.

Evaluation of China's OFDI Efficiency in Key Countries along "the Belt and Road" Based on DEA Model and Malmquist Index

With the continuous promotion and development of "the Belt and Road" construction, the economic cooperation and exchanges between China and the countries along "the Belt and Road" have been gradually deepened, and outward foreign direct investment (OFDI) is one of the important channels of economic exchanges between China and other countries. Therefore, the efficiency of outward investment is also getting more and more attention from all walks of life. Based on the panel data of China's direct investment in 26 key countries along "the Belt and Road" from 2014 to 2020, this paper uses DEA model and Malmquist index to conduct a comprehensive analysis and evaluation of China's OFDI efficiency. From the results of the DEA model, China's OFDI efficiency to key countries along "the Belt and Road" is low to medium, and the country differences in investment efficiency are mainly caused by the low scale efficiency (SE). From the results of the Malmquist index, China's investment in key countries along " the Belt and Road" in 2014-2020 is on a declining trend, and the investment efficiency will decrease significantly in 2019-2020 due to the impact of the COVID-19 pandemic. Therefore, we shall further improve the scale efficiency of OFDI, strive to develop advanced technology, encourage innovation, improve the technical progress index, optimize the choice of regional investment, and stimulate its vitality.

Distance of doing business and outward foreign direct investment: An empirical study of China

AbstractDifferences between the business environment in the home country and the host country are an important factor when enterprises consider their location choice with regard to outward foreign direct investment (OFDI). However, this is ignored by much existing literature. Based on the trade‐off framework of international firms between exporting and participation in OFDI under the condition of heterogeneous enterprises, this paper constructs a theoretical model of the impact of distance of doing business (DDB) on OFDI. We take China's OFDI as an example and use the World Bank Group's Ease of Doing Business Index to construct the DDB indicator, as well as test the impact of the DDB on China's OFDI by combining the macro‐location panel data of China's OFDI between 2004 and 2017. The results showed that increasing DDB significantly reduces the scale of China's OFDI. The effect is robust. The mechanism is that DDB significantly decreases the success rate of OFDI and increases the cost of OFDI, thereby decreasing the scale of OFDI. Further analysis then finds that official acts, such as building partnerships, and folk acts, such as increasing cultural identity, can significantly reduce the negative effect of DDB on OFDI.

The Dynamic Panels With Threshold Effect of China's OFDI on Host Country Technological Progress

Using the dynamic panel threshold model and data of 41 countries along “the Belt and Road” from 2003 to 2017, this paper empirically tests the impact of China’s outward foreign direct investment (OFDI) on technological progress of these countries and its threshold effect. The results show that OFDI exerts different effects on technological progress of countries along the route within different thresholds range. Based on the classification of different country types, when FD is below than the threshold value, China’s OFDI in transitional and developing countries has no significant impact on their technological progress, while developed countries have a more significant positive correlation; other, when FD is higher than the threshold value, both types of countries are significantly positively correlated, and the coefficient is greater in developed countries than in transitional and developing countries. In further research, it is divided into two periods based on the time node of 2013.

Comprehending the environmental regulation, biased policies and OFDI reverse technology spillover effects: a contingent and dynamic perspective.

Technology spillovers have the substantial effect on the industrial structure in emerging economies especially from OFDI (Outward Foreign Direct Investment). This research aims to examines the issue on how environmental regulation and biased policies can more effectively promote the OFDI reverse technology spillover effect, specifically the technology spillovers. By classifying the key industries mentioned in the '12th Five-Year Plan' and '13th Five-Year Plan', this research uses panel data from 2010 to 2019 obtained from provincial OFDI in China and utilizes difference in difference (DID) model and threshold regressionapproach to validate the analysis. The results show that the key industrial policy is favorable to the local OFDI reverse technology spillover. From the outlook of economic significance, the industrial policy increases the regional OFDI reverse technology spillover by 0.133%. Findings of our study further reveals that the environmental regulation and biased policy effectively promote the regional OFDI reverse technology spillover with certain stability. This study findings will be beneficial for policy makers to stimulate the reverse technology spillover impact of local OFDI more effectively from three aspects such asregional marketization level, innovation ability and financial structure.

Technological innovation policy and Chinese heterogeneity enterprises' outward foreign direct investment

PurposeThe study aims to analyze the role of the Made in China 2025 (MIC2025) initiative in China's Outward Foreign Direct Investment (OFDI) and the factors affecting the success or failure of Chinese enterprises' OFDI from the perspectives of the heterogeneity of home country enterprises.Design/methodology/approachBased on data on China's OFDI obtained from the China Global Investment Tracker (CGIT), the study uses the difference-in-differences model to analyze 2,670 completed OFDI deals and 211 failed OFDI deals by Chinese enterprises, from 2009 to 2018.FindingsThe study found that the effect of MIC2025 on Chinese enterprises' OFDI varies according to the ownership structure of the home country's enterprises. For successful OFDI, MIC2025 significantly impacted central state-owned enterprises (CSOEs), while it did not significantly influence local SOEs and privately owned enterprises. For failed OFDI, the MIC2025 plan only increased the failure of CSOEs' OFDI for the technology-seeking motivation in high-income host countries. Further, the investment options of local SOEs differ from those of CSOEs. Considering their aim to drive the local economy and seek profits, they are more similar to those of privately owned enterprises.Originality/valueThis study used a new database (i.e. the CGIT) to analyze Chinese enterprises' OFDI. It discussed the role of MIC2025 for different enterprises from the perspectives of successful and failed OFDI. It thus provided a new basis for analyzing policy affecting the OFDI of Chinese enterprises.

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

China is experiencing rapid economic development where outward foreign direct investment (OFDI) ranked third globally in 2017. OFDI could affect energy efficiency in China through reverse technology spillover. However, few studies have studied the impact of OFDI on total factor energy efficiency (TFEE), notably on the non-linear relationships and potential threshold level of the variables that would impact non-linearity. A panel smooth transition regression (PSTR) model was developed to analyse the non-linear impact of OFDI (explaining variable) on TFEE (explained variable). The data from 30 provinces, municipalities and autonomous regions (except Tibet) in China from 2006 to 2017 were considered. Industrial structure, opening-up level and human capital were selected as the transition variables to analyse potential threshold levels on how OFDI would enhance TFEE. The PSTR modelling results show that increasing OFDI in China can improve TFEE where the relationship is non-linear. The thresholds for opening-up level, industrial structure and human capital are 36.11%, 37.59% and 8.33%. With the change of the industrial structure, opening-up level and the human capital, the effect of OFDI on TFEE transited slowly and smoothly between high and low regimes. The opening-up level in Fujian, Zhejiang, Tianjin, Jiangsu, Guangdong, Beijing, and Shanghai is above the threshold level. Most regions show the industrial structure and human capital levels above the threshold. This study shows the importance of developing a non-linear model to accurately evaluating the impact of OFDI in enhancing TFEE in China. The model enables policymakers to assess the thresholds of the transition variables to observe the positive effect of OFDI on TFEE.

Study on China's Outward Foreign Direct Investment

Outward foreign direct investment (OFDI) is of pivotal importance to the economic development and technological progress of a country. The current situation of OFDI in China varies greatly between the eastern, central and western regions due to various reasons of history, geography and economic environment. Based on the existing studies related to the synergistic effects of China's OFDI, the influencing factors and the micro role of enterprises, this paper analyzed the current situation of China’s OFDI, learned from classical theories in the field of OFDI, and put forward related policy recommendations. The paper thought that the country should improve the technology level and marketization, meantime, optimize the industrial structure and enrich the investment fields. Besides, strengthening the development and construction of the central and western regions can help those regions reach their full potential.

Note from the Editor

Note from the Editor

A “Good” Country without Democracy: Can China's Outward FDI buy a Positive State Image Overseas?

This study examines the effects of China's outward foreign direct investment (FDI) on buying its state image abroad. We argue that regime survival has motivated China to use FDI to improve its state image and induce the world to accept China as a “good” country without democracy. Our analysis shows that while world public opinion becomes more favorable to China when its FDI share increases, even democratic countries remain less favorable toward this growing power. However, when China's FDI share crosses a higher threshold, democratic countries' unfavorable view toward China is compromised and the significant difference in favorability between democratic and nondemocratic countries is diminishing. China's FDI share has no significant effect on improving its state image in the Asia Pacific region, in particular—probably due to the memory of past wars with China and China's aggressive geopolitical strategy that focuses more on hard power competition. Our empirical results are robust in terms of their consistency with the governments' UN voting similarity with China.Related ArticlesÅberg, John H. S., and Derick Becker. 2020. “China as Exemplar: Justin Lin, New Structural Economics, and the Unorthodox Orthodoxy of the China Model.” Politics & Policy 48 (5): 815‐835. https://doi.org/10.1111/polp.12376Asongu, Simplice A. 2016. “Sino‐African Relations: A Review and Reconciliation of Dominant Schools of Thought.” Politics & Policy 44 (2): 351‐383. https://doi.org/10.1111/polp.12152Davis, G. Doug. 2011. “Regional Trade Agreements and Foreign Direct Investment.” Politics & Policy 39 (3): 401‐419. https://doi.org/10.1111/j.1747‐1346.2011.00296.x

China's outward foreign direct investment in the Belt and Road Initiative: What are the motives for Chinese firms to invest?

Because of the potentially large and important effects of the extremely ambitious Belt and Road Initiative (BRI) launched by China in late 2013, considerable attention has been given to the motives for, and repercussions of, the BRI-driven infrastructural projects. Yet, the non-infrastructural outward foreign direct investment (FDI) from China to BRI countries, which varies quite substantially across different sectors and different countries, has not yet received much attention. In contrast to some recent studies showing that the massive initiative has increased China's total FDI outflows to fellow BRI countries, in this paper, based on our sector-level difference-in-differences models, we find that effect to be statistically insignificant. Yet, at the same time, we provide empirical evidence on the sectoral pattern of China's outward FDI before and after 2014 indicating that China's FDI outflows to BRI countries have significantly increased in sectors characterized by overcapacity and contributing to pollution in China, thereby demonstrating that China's BRI-driven outward FDI has been very selective in terms of sectors. We confirm these findings with a variety of robustness checks and show that it is BRI countries with relatively low institutional quality that have been more likely to receive these types of FDI from China. We thus speculate that Chinese firms have been motivated to place FDI investments in BRI countries for the sake of alleviating China's own overcapacity and pollution problems. Our findings lead us to suggest that, although these sectoral patterns are consistent with the different stages of economic development in which China and its fellow BRI-identified countries find themselves, Chinese investors and host country governments should be more concerned with the potential for unwanted side-effects of the FDI investments so that the mutually beneficial effects of the BRI can be sustained into the indefinite future among all countries involved.