Why is U.S. Direct Investment in China so Small?

13 Pages Posted: 28 Aug 2013

See all articles by Kevin H. Zhang

Kevin H. Zhang

Illinois State University - Department of Economics; University of Colorado

Date Written: January 2000


While the United States is the largest source of foreign direct investment (FDI) in the world, and China is the largest FDI recipient among developing countries, U.S. direct investment (USDI) in China has been surprisingly small. This article investigates the determinants of USDI through a relative‐demand model with time‐series data. Evidence presented in this article indicates that the small USDI cannot be fully appreciated without understanding differences between USDI and Hong Kong direct investment (HKDI), the latter being the dominant source of FDI in China. Empirical results suggest that the USDI in China was primarily motivated by market access and that the HKDI was export oriented. The small USDI thus is a result of U.S. investors' preference for market access and China's export‐promotion FDI regime, along with the troubled Sino‐U.S. relations and political instabilities in China.

Suggested Citation

Zhang, Kevin H., Why is U.S. Direct Investment in China so Small? (January 2000). Contemporary Economic Policy, Vol. 18, Issue 1, pp. 82-94, 2000, Available at SSRN: https://ssrn.com/abstract=2317123 or http://dx.doi.org/10.1111/j.1465-7287.2000.tb00008.x

Kevin H. Zhang (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States
309-438-8928 (Phone)
309-438-5228 (Fax)

University of Colorado

1070 Edinboro Drive
Boulder, CO 80309
United States

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