The Domestic Determinant Factors Of Chinese Foreign Direct Investment

This study uses provincial-level panel data to study the domestic determinants of Chinese enterprises' outward foreign direct investment from 2003 to 2016.The panel dataset includes variables that measure each province's level of tangible and intangible assets(i.e.,resource factors),variables that measure the level of government participation and support(i.e.,institutional factors),and control variables that measure the level of openness to the outside world.The proxies for these theoretical variables were selected based on the availability and completeness of the data.This study uses four econometric models:First,a benchmark model that aggregates all data;second,a provincial fixed-effects model;third,a regional variation model;and finally,a threshold-effects model.Each model represents an improvement of the previous one.The results of the benchmark model and the correlation analysis show that there is a high degree of multicollinearity between the explanatory variables,which led us to further improvements in the model specification.In the end,the three main variables in this study are fixed investment,public expenditure,and total imports.The results of the province fixed-effects model and the regional variation model indicate that investment in fixed assets has a strong and significant impact on foreign direct investment.The results of the threshold effect model also show that investment in fixed assets has a threshold effect on the relationship between fiscal expenditure and foreign direct investment:at low levels of investment in fixed assets,the relationship is negative,but at high levels of investment in fixed assets,the relationship is positive.In addition,both coefficients are significant.The effect of the interaction term between investment in fixed assets and fiscal expenditure also depends on the level of investment in fixed assets,but its sign points in the opposite direction as the coefficient of fiscal expenditure,and it is substantially smaller.These results show that fiscal expenditure has a strong and significant impact on OFDI flows.The study also found that OFDI varies greatly by region:in the combined data regression,the dummy variables for the Central and Western regions show a negative relationship with OFDI flows,and in the individual regression analysis of the Central and Western regions,none of the results were significant.However,the dummy variable for the Eastern region was both positive and significant in both the combined data regression and the individual regression.The results of this study also show that exports have no significant effect on OFDI flows.However,the revised model shows that imports do have a significant positive impact on OFDI flows.This may be because China's export industry is not sufficiently knowledge-intensive,so export companies cannot use the comparative advantages of indigenous knowledge to participate in OFDI.On the other hand,imports may provide more technical knowledge,competitor knowledge,knowledge of potential markets,and sources of knowledge to supplement domestic gaps,all of which would make imports a more important determinant of OFDI than exports.From a macroeconomic point of view,the results of this study show that tangible assets have a significant impact on OFDI flows,and that in capital-rich regions,government support in the form of fiscal expenditure can be used to supplement corporate resources.In short,these results show that to explain or predict China's ODI,we need to consider both resource and institutional factors.