The determinants of Chinese outward foreign direct investment: The case of Africa and South America

Today China is the third largest outward foreign direct investor only behind the USA and Japan. This thesis studies the determinants of Chinese outward foreign direct investment (OFDI) to African and South American countries. The objective of the thesis is to discover the motivations behind Chinese OFDI in Africa and South America, and whether there are differences in the motivations between the two regions. The thesis is based on a literature review of the fundamental theories behind FDI, on recent research on Chinese OFDI and on an empirical analysis. The empirical analysis will test my hypotheses using Chinese OFDI stock data on 39 African and 20 South American countries collected between 2003 and 2012. The results indicate that Chinese OFDI to Africa and South America is market and resource seeking, but not efficiency or strategic asset seeking. The study also finds that host country institutions, business efficiency and macroeconomic factors do not play a role in attracting Chinese OFDI to the regions. Geographic factors, trade relations and openness have varying effects between the two regions. In the case of Africa, geographic factors and openness do not play a role in attracting OFDI, but established trade relations seem to promote OFDI. In the South America case, while geographic factors mostly do not play an important role, openness seems to promote OFDI. Finally, there is evidence that imports might crowd out OFDI to South America. The limitations of the thesis are discussed and further research possibilities and extensions are suggested