Outward Chinese FDI – OLI, LI or just L?

Jesper Strandskov, Kurt Pedersen

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The recent wave of foreign direct investments from less developed nations, notably India and The Peoples Republic of China, has taken the world with some surprise. Indian wind turbine producers and Chinese multinationals in electronics operate in US and EU from partly or wholly owned subsidiaries. From an economic, as well as a business point of view, however, it should not take us by surprise but rather be an expected development. International economics would argue that as income disparity decreases there should be a broader common foundation for intra-industrial trade; and similarly comparative advantages are slowly ironed out as far Eastern growth rates keep beating Western rates. In relation to FDI the economic arguments are comprehensively put together in Dunning´s Investment Development Path. The argument is that with increasing output per capita nations move from being net-receivers of FDI towards being net-suppliers – and finally net-investments even out around some equilibrium. For a quarter of a century China has shown an increasing trend in inwards FDI, and it is by no means surprising that she has now started – if at a quantitatively small scale – to be an FDI supplier at the world stage.
Not only should we expect this to happen, we should also welcome it for precisely the same reasons that we should welcome increasing world trade. If FDI is a more efficient way to handle foreign markets – combining comparative and competitive advantages – the global welfare gains are enhanced by substituting trade by direct investments. China is not the first nation to gain by international division of inputs – the finest historical example probably is Japan which in the 1970s shocked the West much like Chinese firms now do. It is time to learn from history
Original languageEnglish
Title of host publicationOutward Chinese FDI – OLI, LI or just L?
Number of pages17
Publication date12. Dec 2009
Publication statusPublished - 12. Dec 2009

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