The Effect of Economic Cooperation on China’s Outward Foreign Direct Investment—A Spatial Panel Data Approach

ABSTRACT

The study investigates the factors influencing the distribution of Chinese outward foreign direct investment (OFDI) across different host countries. Although economic cooperation between the host country and home country is an important driving factor of OFDI, it is largely ignored in the empirical literature. In this study, we first investigate this issue by employing spatial econometric techniques using Chinese OFDI data between 2003 and 2014. We find that Chinese OFDI to the host country is positively associated with China’s economic cooperation with it after considering the traditional determinants of OFDI, and its effect is robust with a different sub-sample. We also find strong support for the argument that Chinese OFDI shows a significant spatial agglomeration pattern. Furthermore, the host country’s market size, openness to FDI, and well-developed infrastructure attract Chinese OFDI, while the effect of geographic distance to China, and the cultural proximity to China do not hold using different samples.

KEY WORDS:

• foreign contracted project
• investment motivation
• outward foreign direct investment
• spatial effect

Acknowledgments

The authors thank Ali M. Kutan and two anonymous referees for their helpful comments and suggestions.

Funding

The article acknowledges the funding from the National Natural Science Foundation of China (71573251, 71103177).

Notes

^1. Ratio of the 79 economies after excluding three free trade islands, which are the British Virgin Islands, Cayman Islands, and Bermuda.

Additional information

Funding

The article acknowledges the funding from the National Natural Science Foundation of China (71573251, 71103177).