Abstract
Previous studies on home country effects have mainly focused on foreign direct investment (FDI) from large developed economies to other countries. However, today’s super recipient is a relatively larger economy than its investors, and many of these investors are not classified as “developed economies.” This article uses panel data from 1993 to 2014 to examine the effects of FDI outflows on a home country’s growth and employment. The empirical results for Japan and Asian NIEs (source countries) and China (recipient country) show that FDI outflows to China lead to decreases in the relative income between the source country and China and to increases in the source country’s unemployment rate. In addition, I find that FDI outflows to China decrease the exports-to-GDP ratio only for small source countries (Taiwan and Korea), even though higher investment in China raises the ratio of their exports-to-China to China’s total imports.
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Notes
- 1.
For instance, China issued the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, Law of the People’s Republic of China on Foreign-Capital Enterprises and the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures in 1979, 1986 and 1988, respectively. All three laws are basic laws for attracting foreign investment. Additionally, the Income Tax Law of the People’s Republic of China for Foreign Enterprises, passed in 1991, stipulates the rules for the income taxation of joint ventures, solely owned enterprises and cooperative enterprises. With foreign investment, China aimed to solve the problem of inadequate domestic funds, earn foreign exchange through export expansion, introduce international technologies, promote industrial improvement and overcome the bottlenecks in transportation, energy and raw materials.
- 2.
The theoretical model proposed by Lee et al. (2009).
- 3.
- 4.
In addition, the FDI outflows/GDP ratios are three to four times higher in Hong Kong than in Canada, and about two times higher in Singapore than in Canada. Taiwan’s FDI outflow/GDP ratio remains at Canada’s 1990 average level. Thus far, Korea’s FDI outflow/GDP ratio is still below 1%.
- 5.
For the same period, Canada’s relative GDP to the USA stayed between 0.7 and 0.9. In 2004, the ratio was 0.8, back to the 1960s level, and roughly equal to the average of the sample.
- 6.
Note that the marginal productivity of input factors depends not only on A, but also on factor inputs and parameters. Here I simply assume that the difference between domestic inputs/parameters and foreign inputs/parameters is relatively insignificant.
- 7.
The web site is www.fdi.gov.cn/common. There were a variety of regulations on outward FDI to China by the governments of Taiwan, Korea and Singapore before the 1980s and the early 1990s. The official FDI data toward China might thus be underestimated by the three governments, and inward FDI from China might be relatively reliable. An unavoidable underestimation arises from all the investors indirectly investing through a “tax haven.” Another data flaw between Hong Kong’s and Taiwan’s FDI to China is that a lot of Taiwanese firms use nominal firms in Hong Kong to invest in China, but the actual data are unavailable.
- 8.
Total exports and export-to-China data for Hong Kong, Korea, Singapore and Japan are from the IMF, Direction of Trade Statistics (DOT). Taiwan’s data are from Cross-Strait Economic Statistics Monthly, Mainland Affairs Council, R.O.C.
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Tsui, HC. (2017). The Stagnation of Growth Momentum in Japan and Asian NIEs: From the Perspective of Foreign Direct Investment. In: Honjo, Y. (eds) Competition, Innovation, and Growth in Japan. Springer, Singapore. https://doi.org/10.1007/978-981-10-3863-1_12
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