What Motivates Chinese Firms to Invest in Asia? Analysis Based on Dunning’s OLI Framework

Abstract

This study aims to show the pattern of and magnitude of China’s outward foreign direct investment (OFDI) in Asia and respond to an importan question: what motivaties the remarkable surge in Chinese FDI influx to Asia in recent time? This study will enable policy makers to frame and execute policies to attract further Chinese FDI in future. Our results are based on the panel data of 37 Asian economies over the period 2003 to 2012. Random Effects (RE) method with cluster command is adopted for estimation of models after conducting the Breusch–Pagan LM-test. Our findings revealed that market seeking is the prime motives for Chinese FDI in Asia as GDP and openness to the trade have a positive and significant relationship with Chinese FDI. We did not capture consistent results for resource seeking FDI. Chinese FDI is deterred by inflation, providing an evidence for efficiency seeking FDI. Among the control variables, infrastructural development and bilateral trade are highly influenced by Chinese FDI, while political stability being a key institutional variable is significant but negatively associated with FDI. Policies and Economic strategies should aim at liberalizing trade structure, reducing macroeconomic instability and the provision of better infrastructural facilities to attract further Chinese FDI in Asia.

Keywords: Chinese FDI, Market seeking FDI, Random effect, Asia