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Dynamic relationship between China’s inward and outward foreign direct investments

Yao, Shujie; Wang, Pan; Zhang, Jing; Ou, Jinghua

Authors

Shujie Yao

Pan Wang

Jing Zhang

Jinghua Ou



Abstract

This paper studies the dynamic relationship of China’s inward and outward foreign direct investments (FDI). It first identifies the key determinants of China’s outward FDI (OFDI) in 172 host countries during 2003-09 using a partial stock adjustment model. It finds strong evidence of dynamic adjustment in China’s OFDI stock with an agglomeration effect. The dynamic adjustment and agglomeration effects are stronger in “high-tech” countries than in “low-tech” ones but indifferent in host country’s resource endowments and income levels. The empirical results suggest that there exists a substantial adjustment cost in China’s OFDI and that China’s existing OFDI stock can gradually adjust towards its long term equilibrium level, which is not only greater but also more volatile than the actual stock. Of particular interest is that we find a strong and positive relationship between lagged inward FDI (IFDI) and contemporaneous OFDI, implying that capital outflow from China has been partially induced by the countries which have invested in China.

Journal Article Type Article
Publication Date Sep 1, 2016
Journal China Economic Review
Print ISSN 1043-951X
Electronic ISSN 1043-951X
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 40
APA6 Citation Yao, S., Wang, P., Zhang, J., & Ou, J. (2016). Dynamic relationship between China’s inward and outward foreign direct investments. China Economic Review, 40, doi:10.1016/j.chieco.2016.05.005
DOI https://doi.org/10.1016/j.chieco.2016.05.005
Keywords Foreign direct investment; Dynamic adjustment; Agglomeration effect; Partial stock adjustment; China
Publisher URL http://www.sciencedirect.com/science/article/pii/S1043951X16300608
Copyright Statement Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0





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