Is Chinese outward FDI in MENA little?
| Published date | 06 February 2017 |
| DOI | https://doi.org/10.1108/JCEFTS-09-2016-0026 |
| Date | 06 February 2017 |
| Pages | 19-43 |
| Author | Rania S. Miniesy,Eman Elish |
| Subject Matter | Economics,International economics |
Is Chinese outward FDI in
MENA little?
Rania S. Miniesy and Eman Elish
Department of Economics, The British University in Egypt, Cairo, Egypt
Abstract
Purpose –This paper aims to investigate the host country determinants of Chinese Outward FDI (OFDI)
and, given these determinants, examines whether Chinese OFDI in MENA is less than elsewhere.
Design/methodology/approach –Data for the top 40 Chinese OFDI recipients including seven MENA
countries from 2003 to 2012 were obtained. A pooled ordinary least squares estimation technique on the lagged
explanatory variables and the lagged dependent variable – ows and stocks alternatively – with robust
standard errors was used.
Findings –Chinese OFDI is market, resource and efciency seeking and is attracted by poor governance.
The seven MENA countries seemingly receive signicantly less Chinese OFDI ows compared to other
countries. However, careful inspection shows that UAE is creating this bias. This maybe because exporting to
UAE rather than licensing or FDI seems like the best scenario, or UAE is already satiated with FDI from other
countries, or China is waiting for the right time to enter such an FDI-competitive market like that of UAE.
Originality/value –Chinese OFDI is particularly important for MENA because it has a comparative
advantage relative to other FDI source countries, and no research so far has investigated if it is less than in
other regions, which could provide insights on how to attract it.
Keywords China, Gravity model, MENA, Outward foreign direct investment, Eclectic paradigm,
Poor governance
Paper type Research paper
1. Introduction
China has been (is) one of the top FDI destination countries. It has shifted from being a
negligible FDI source country less than a decade ago to being the third largest after the USA
and Japan (FDI Intelligence, 2015). Several empirical researches have been investigating the
determinants of Chinese outward FDI (OFDI) using different methods, a small number of
which centered on aggregate FDI data (Amighini et al., 2011), which is the approach of this
paper.
Studies examining the determinants of Chinese OFDI into MENA[1] have been limited to
one study that included MENA and some African countries. There is no research (to the best
of the authors’ knowledge) that investigated whether Chinese OFDI into MENA is less than
other regions. This paper intends to ll this knowledge gap; it rst intends to investigate the
host country determinants of Chinese OFDI in general for the top 40 country recipients of
The authors would like to thank their colleagues Dr Alaa Abdel Aziz, Dr Hany Elshamy and
Mr Hossameldin Ahmed for their help with our econometric enquiries. They would also like to thank
Professor John Adams for his constructive comments on the earlier version of this paper. Much
appreciation also goes to Professor Bernard Hoekman, the paper discussant, for his very valuable
comments and discussion during the authors’ presentation in the 22nd ERF conference. An earlier
version of this work was published as an ERF Working Paper Number 1024.
This work was sponsored by the Economic Research Forum (ERF) and has beneted from both
nancial and intellectual support. The contents and recommendations do not necessarily reect ERF’s
views.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1754-4408.htm
Is Chinese
outward FDI
in MENA
little?
19
Journalof Chinese Economic and
ForeignTrade Studies
Vol.10 No. 1, 2017
pp.19-43
©Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-09-2016-0026
Chinese OFDI from 2003 until 2012 and then given these determinants, to examine whether
Chinese OFDI in the sample of MENA countries – the MENA_7 – is less than from elsewhere
and the reasons behind that, if any. Data unavailability curtailed the intention of including
more MENA countries. However, these MENA_7 are believed to be representative of the
MENA region, as they account for more than 80 per cent of Chinese OFDI stocks in this
region. A positivist empirical approach is used.
These objectives are important. First, because China is a relatively newcomer to OFDI
and having a complete understanding of how it operates can deepen the understanding of
FDI as a phenomenon and provide insights into future trends and developments. Second,
Chinese OFDI is particularly important for MENA because it has a comparative advantage
relative to other FDI source countries because of the following reasons: China has no
particular political afliations that might prejudice its allocations across countries; for some
MENA countries, China is outsizing other top FDI source countries; as previous research
suggested (discussed later), China does not seem deterred by economic instability or poor
governance, which currently characterises most MENA countries, and thus Chinese OFDI
could provide much needed investment funds, foreign currency, technological spillovers and
jobs; and results of this research should help identify key factors within MENA countries
that attract/discourage Chinese OFDI in this region.
This paper is organized as follows. Section 2 provides a background on China’s OFDI
prole as well as MENA_7’s inward FDI prole from China and from other top source
countries. Section 3 presents the theoretical foundation of FDI. Section 4 reviews the
empirical literature whilst explaining the hypotheses and the choice of variables together
with their expected signs. Section 5 discusses the model and interprets the results. Section 6
concludes.
2. Background
2.1 China’s outward FDI prole
In 2003, Chinese FDI outows were around US$3bn while its outstocks were US$33bn
(Figure 1). Throughout the years, Chinese FDI outows and outstocks increased to reach
US$123 and US$883bn, respectively, in 2014. Chinese FDI outows even surpassed its FDI
inows for the rst time in 2014 (UNCTAD, 2015,2016).
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
Millions of USD
Years
oulows
outstocks
Source: Raw data from UNCTAD. Figures created by authors
Figure 1.
Chinese FDI outows
and outstocks from
2003 till 2014
JCEFTS
10,1
20
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