Wang, Pan
(2012)
Essays on China's outward foreign direct investment: 1991-2009.
PhD thesis, University of Nottingham.
Abstract
China’s outward foreign direct investment (OFDI) grew from a very limited scale prior to the 1990s to reach an annual average growth rate of 67% between 1991 and 2009, placing China as the largest FDI source country among the developing countries, and the fifth largest FDI source country in the world in 2009. China’s experience is particularly interesting because it serves to help us further understand OFDI in general and the emergence of investments from the developing countries in particular. This thesis aims to answer a series of unexplored questions about China’s OFDI, including its underlying motivations and locational determinants, the dynamic adjustment of China’s OFDI and its relationship with China’s inward foreign direct investment (IFDI), as well as the displacement effect of China’s OFDI on the OECD’s OFDI in the host countries.
The first essay of this thesis (Chapter 3) investigates the underlying motivations and the locational determinants of China’s OFDI flow in detail, and focuses on the role played by the host country’s natural resources and technology. The chapter constructs two datasets, the first one encompasses 157 host countries for the recent period 2003-2009 and the second one includes 171 host countries for the early period 1991-2003. An FDI gravity equation is estimated by using alternative specifications, including Tobit, fixed effects and the Heckman selection model. In the recent period of 2003-2009, the findings provide strong evidence of the natural resources-seeking motivation and the technology-exploiting motivation in Chinese OFDI. In particular, China’s OFDI is driven to resources abundant countries with poor governance. The chapter also argues that China’s OFDI is promoted when the oil price is growing. In the early period of 1991-2003, however, there is only some evidence that China’s OFDI is driven to resources abundant countries with poor governance, and no evidence that the host country’s technology plays a role in Chinese OFDI.
The second essay (Chapter 4) introduces a partial stock adjustment model and provides the first study on the dynamic adjustment of China’s OFDI in a dynamic framework. The effect of China’s IFDI on China’s OFDI within this dynamic framework is also studied. 172 host countries are included for 2003-2009 by using the System GMM, OLS and fixed effects models under an augmented gravity specification. The chapter provides strong evidence to support the dynamic adjustment of China’s OFDI. The equilibrium OFDI stock is greater and more volatile than the actual OFDI stock, implying that the underinvestment in China’s OFDI and the possible existence of the substantial adjustment costs associated. The findings suggest that the host country, on average, exploits its potential in attracting China’s future investments. There is some evidence of the positive correlation between China’s IFDI and China’s OFDI. In particular, the dynamic adjustment of China’s OFDI is stronger for the high-technology host countries, and the positive association between IFDI and OFDI is higher for the high-income host countries.
The third essay (Chapter 5) is the first piece of research to examine whether and how China’s OFDI displaces the OECD’s OFDI in the given host countries. The chapter examines 33 of the OECD countries’ OFDI flow into 155 host countries for 2003-2009. Most importantly of all, the chapter also explores how the OECD countries’ OFDI are affected by China’s OFDI in these host countries. TSLS and fixed effects estimations are undertaken under an augmented gravity specification. The chapter presents evidence that China’s OFDI displaces the OECD’s OFDI in general. However, in contrast to the often-cited arguments concerning a ‘new colonialism’ in Chinese OFDI, no evidence was found that the OECD’s OFDI in oil and metal abundant host countries, in particular Africa and Latin America, are displaced by China’s OFDI.
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