'Going Global' and FDI Inflows in China: 'One Belt & One Road' Initiative as a Quasi‐Natural Experiment

19 Pages Posted: 7 Jun 2020

See all articles by Changyuan Luo

Changyuan Luo

Fudan University

QINGYUAN CHAI

affiliation not provided to SSRN

Huiyao Chen

affiliation not provided to SSRN

Date Written: June 2019

Abstract

This paper investigates the impact of “One Belt & One Road” as an exogenous policy shock on the utilisation of foreign capital in China in the short term. Based on provincial panel data for the years 2003–15, the empirical study is conducted with difference‐in‐differences design. The first difference is whether a province is an OBOR province, and the second is whether “One Belt & One Road” initiative has been proposed. The empirical results suggest the utilisation of foreign capital in OBOR provinces has decreased significantly compared to non‐OBOR provinces after the initiative has been proposed. The study has further shown that the OBOR construction not only means factor movements and projects but also stands for policy shock. Its impact on utilisation of foreign capital cannot be simply captured by the commonly quantifiable “going global” indicators, namely outward direct investment, overseas contracted projects or overseas labour services. The negative impact of the initiative on foreign capital utilisation is strongly reflected in the OBOR provinces with low levels of economic development, heavy fiscal burdens and high proportions of state‐owned economy. In the short term, the negative impact of the initiative on foreign capital utilisation may be due to its role in resource competition and signal delivering. The former means that the OBOR initiative may induce resource competition between “going global” and “bringing in,” and the latter suggests that this initiative is likely to be regarded as a “signal” by foreign investors that “going global,” not “bringing in,” has become the priority of the government.

Keywords: foreign capital utilisation, “One Belt & One Road”, resource competition, signal delivering

Suggested Citation

Luo, Changyuan and CHAI, QINGYUAN and Chen, Huiyao, 'Going Global' and FDI Inflows in China: 'One Belt & One Road' Initiative as a Quasi‐Natural Experiment (June 2019). The World Economy, Vol. 42, Issue 6, pp. 1654-1672, 2019, Available at SSRN: https://ssrn.com/abstract=3620949 or http://dx.doi.org/10.1111/twec.12796

QINGYUAN CHAI

affiliation not provided to SSRN

Huiyao Chen

affiliation not provided to SSRN

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