Determinants of Chinese and American Outward Investment

Abstract

The People's Republic of China can become an important and influential player in the world through its overseas investments in developing countries. This article examines and compares the determinants of Chinese and American direct investment around the world. The cross-sectional analysis is adopted for the years 2005 and 2006. Basic and improved Sala-i-Martin extreme bound analyses are applied in searching for robust determinants. The results suggest that distance, infrastructure facilities, and energy reserves are important factors in attracting investment from China and the United States. Institutional factors are not robust determinants of China's outward direct investment, suggesting that Chinese investors do not pay enough attention to institutional risks in making investments.