Analysis On Location-specific Risks Faced By Chinese Foreign Direct Investment In Manufacturing Industry

This paper analyzes location-specific risks faced by Chinese foreign direct investment in manufacturing industry. Specifically, I divide location-specific risks into three parts, which are political risks, social and cultural risks, and economic risks. I construct distance variable to measure political risks as well as social and cultural risks. And they world affect all investment taken abroad. In terms of economic risks, I assume that different kinds of investments (namely market-seeking, efficiency-seeking and technology seeking investments) are sensitive to different risk factors.Then, this paper choose 21 countries (areas), where the majority of Chinese manufacturers invest, as my as my sample. I first use clustering method and Self-organizing Map (SOM) to cluster these 21 countries (areas) according to their political and social attributes. Both results cluster them into 5 clusters. Second, according to clustering results, I build regression model to analyze the relationship between invest flows and different economic factors. In the last part, I build an easy Sequential Move Game to provide suggestions about how to avoid risks when investing in European or American countries.