FOREIGN DIRECT INVESTMENT OUTFLOWS FROM CHINA AND INDIA

Abstract

In this paper, we examine the determinants of Indian and Chinese FDI outflows. There are three sets of results. First, Chinese investment is attracted to more corrupt countries, while India is attracted to economies with better rule of law. Further analysis suggests that our result of China investing in more corrupt destinations is mostly driven by Chinese investment in the sub-sample of African countries. While we do not conduct economic welfare analysis, several studies in the literature reported that China's investment in Africa contributed to increased Asia–Africa trade and narrowing of the infrastructure deficits of the sub-Saharan African economies. Second, Chinese FDI is going to economies which are larger but poorer. Indian FDI is going to smaller but richer host countries. Lastly, both India and China seem to be investing in economies to seek fuels. There is also some evidence that they are investing to acquire technology. Exchange rates do not play a major role in affecting Indian or Chinese investment.