The Determinants of Chinese Outward Foreign Direct Investment: A Closer Look

Abstract

Over the last fifteen years, China rapidly expanded its outward foreign direct investment (OFDI) through remarkable economic growth and the i°go globali± policy. Chinese firms explored investment avenues especially in developing and emerging countries. As a result, China became the third largest contributor of OFDI. We examine the determinants of Chinese OFDI in 67 countries during the period lasting from 2006 to 2015 using the feasible generalized least square method. We find that the size of the economy, market opportunities, cost advantages due to low wage structure, ease of doing business, country risk, and geographical proximity are the prominent factors leading to changes in Chinese OFDI in developing and emerging economies. We find that Chinai¯s investments in different developing and emerging countries are driven by a different set of factors and the determinants of Chinese OFDI vary in low and high per capita income countries.