Transformations  in
Business & Economics

THE INFLUENCE OF CHINA'S IMPORT ON ITS OFDI LOCATION
Xing Fan, Lei Wang

ABSTRACT. The relation between trade and OFDI has been studied for many times in traditional literature. Most of these researches are discussing about the relation between export and OFDI. Whether the relation between export and OFDI is substitution or complement is the main topic in existing literature.
Current world-wide trade war shows that one country's import from a specific country also could influence its OFDI in this country by a totally different inter-government mechanism. Tariff on import could be a kind of bargaining power of MNCs' home government to make importing country governments help MNCs' OFDI. For example, during recent USA-China trade war, China lifts many OFDI restrictions under USA's tariff pressure. Unlike the relation between export and OFDI, the relationship between one country's import and OFDI has seldom been researched. In this study we argue that with economy globalization, import could increase home government's bargaining power to push host country government facilitate its OFDI. In this paper, we investigate the influence of China's import on China's OFDI location choice by using the panel data of China's OFDI in 46 countries from 2003 to 2017. Our empirical results show that China's import from host country could facilitate its OFDI directly and this effect is more significant in countries with worse institution quality.

KEYWORDS:  import, trade, OFDI, location, China.

JEL classification:  M21, P33.

²Acknowledgment:  We acknowledge the funding support by National Natural Science Foundation of China (No.71572032), Donghua research program (No.2017405).