The Impact of China's FDI Surge on FDI in South-East Asia: Panel Data Analysis for 1986-2001.

China's surge in foreign direct investment inflows is raising concerns that it is taking such investment away from other South-East Asian economies. This article assesses whether this is the case, using fixed-effects estimation to test for the relationships between FDI in South-East Asian economies within a simple model of location determinants of foreign direct investment, assuming the supply of FDI to be elastic. The results suggest that China raised rather than diverted such investment into neighboring economies during 1986-2001; the results obtain whether inflows are lagged or not. This may be because countries do not compete for foreign direct investment in market and resource-seeking activities; the only competitive segment is likely to be export-processing--here China may be complementing other countries in electronics, where they are being integrated into a regional production network. There may be FDI substitution in other export-oriented industries, but the effect is not large enough to influence the results. However, the data do not allow different types of FDI to be tested separately, and this conclusion remains speculative