With the rapid increase of China's outward foreign direct investments (OFDIs) since the early-2000s, a growing body of literature has developed that investigates investment processes and their underlying motivations and tendencies. Three important findings emerge from this literature. First, it has been noted that the generation of market and resource access have been key drivers of investment activity. Second, China's OFDIs have accordingly focused on mature manufacturing and natural resource sectors. Third, a large proportion of OFDIs is assumed to have been directed to neighboring countries in East Asia or other developing economies, for instance in Africa. However, a literature review reveals limitations in prior studies with respect to measurement biases, database incompatibilities, the neglect of a knowledge perspective, and a lack of sectoral differentiation. Descriptive analysis based on a comprehensive firm-level data set of greenfield investments shows that previous findings are only partial. According to fDi Markets data from 2003 to 2016, OFDIs from China are more diversified and widespread than assumed. Many recent investments have a distinct knowledge motivation, are focused on high-tech and business service sectors and non-manufacturing functions, and are directed toward developed economies.
While outward foreign direct investments (OFDIs) shift resources from a home economy to foreign destinations, increased market and resource access as well as technological and knowledge effects in return have positive impacts on the home region. Such effects may be especially important in emerging contexts, such as that of China. Analyzing data of 285 Chinese city-regions, this paper investigates the impact of OFDIs on home-region income. We show that foreign investment activity positively and significantly impacts income levels in the home region, with differentiated effects depending on the knowledge characteristics of investments and regional absorptive capacity.
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