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Why is U.S. direct investment in China so small?
Author(s) -
Zhang KH.
Publication year - 2000
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2000.tb00008.x
Subject(s) - foreign direct investment , china , international economics , market size , economics , promotion (chess) , investment (military) , international trade , preference , politics , business , macroeconomics , geography , political science , archaeology , law , microeconomics
While the United States is the largest source of foreign direct investment (FDI) in the world, and China is the largest FDI recipient among developing countries, U.S. direct investment (USDI) in China has been surprisingly small. This article investigates the determinants of USDI through a relative‐demand model with time‐series data. Evidence presented in this article indicates that the small USDI cannot be fully appreciated without understanding differences between USDI and Hong Kong direct investment (HKDI), the latter being the dominant source of FDI in China. Empirical results suggest that the USDI in China was primarily motivated by market access and that the HKDI was export oriented. The small USDI thus is a result of U.S. investors' preference for market access and China's export‐promotion FDI regime, along with the troubled Sino‐U.S. relations and political instabilities in China.