Alan Siu

Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China

In this paper, we examine whether hard infrastructure in the form of more highways and railroads or soft infrastructure in the form of more transparent institutions and deeper reforms lead to more foreign direct investment (FDI). We use data of FDI from the United States, Japan, Hong Kong, Taiwan and Korea to various regions of China from 1990 to 2002. We control for the standard determinants of FDI--regional market sizes, wage rates, human capital and tax policies. Then we add indices of hard and soft infrastructures. We found that empirically soft infrastructure consistently outperforms hard infrastructure as a determinant of FDI.

The Giant Sucking Sound: Is China Diverting Foreign Direct Investments from Other Asian Economies?

Is China taking direct investments away from other Asian economies? Theoretically, a growing China can add to other countries’ direct investments by creating more opportunities for production-networking and raising the need for raw materials and resources. At the same time, the extremely low Chinese labor costs may lure multinationals away from other Asian sites when the foreign corporations consider alternative locations for low-cost export platforms. In this paper, we explore this important issue empirically. We use data for eight Asian economies (Hong Kong, Taiwan, Republic of Korea, Singapore, Malaysia, Philippines, Indonesia and Thailand) from 1985 to 2001 and control for the determinants of their inward direct investment. We then add China’s inward foreign direct investment as an indicator of the “China Effect†. Due to issues of simultaneity, we use a random effects simultaneous equation model to estimate our coefficients. We have three results: (1) The level of China’s foreign direct investment is positively related to the levels of these economies’ inward direct investments; (2) the level of China’s foreign direct investment is negatively related to the direct investments of these economies as shares of total Asian foreign direct investments; (3) The China effect is not the most important determinant of the inward direct investments of these economies. Policy and institutional factors such as openness, corporate tax rates and corruption can be more important.

An Econometric Estimation of Locational Choices of Foreign Direct Investment: The Case of Hong Kong and U.S. Firms in China

This paper examines the locational choices of Hong Kong and U.S. direct investments (DI) in China using a regional data set from 1990 to 1999. The results of the panel regressions show that there are various similarities and differences in the significance and the magnitudes of the determinants of DI between these two sources. Local GDP significantly affects the inflows of both types of investments, but U.S. investment is more sensitive to local demand. The lagged wage variable negatively affects both Hong Kong and U.S. investment, but Hong Kong investment is more sensitive to local labor cost. A rise in regional labor quality raises both investment inflows, but the quality index exerts a stronger influence on U.S. investment. These econometric estimates can be understood in light of two stylized facts of U.S. and Hong Kong investments in China. First, the motive of U.S. firms investing in China is primarily to sell in China, whereas Hong Kong firms tend to invest in China to take advantage of the low labor costs and then to export. Second, U.S. investments in China tend to be more capital- and skilled-intensive than those from Hong Kong.

Multinational enterprises in China, East Asia, Latin America and Eastern Europe: Moving out or moving in?

Purpose - The purpose of this paper is to examine whether multinational corporations moving into China have a negative impact on the extent of foreign firms moving into other developing countries in East Asia, Latin America and Eastern Europe. Design/methodology/approach - The paper controls for a comprehensive set of determinants of why multinational enterprises enter the economies of East Asia, Latin America and Eastern Europe and then adds and examines the instrumented foreign direct investment flows into China to proxy the impact of China on these other economies. Findings - It was found that the multinational enterprises entering into China stimulate investment in east Asia, but have no significant effects on multinational enterprises entering into Eastern Europe and Latin America. Research limitations/implications - Owing to data constraints, it was not possible to examine if these conclusions hold for different sectors such as the automobile and electronics sectors. Practical implications - Governments in developing countries should focus on increasing their attractiveness to multinational enterprises. Policies such as lowering of the corporate tax rates should help. Originality/value - The paper includes a very comprehensive set of factors and then uses foreign direct investment flows into China as a proxy for the impact of China on other economies.

Developing countries and the World Trade Organization: A foreign influence approach

This paper aims at providing an analytical examination of the criticism that the WTO is unfair and hurts the weak, developing countries. We utilize a formal model with the following features: in both the powerful and the weak economies, pressure groups lobby to influence their trade policies in their respective countries. We then allow the powerful country the exclusive ability to spend resources to facilitate the lobbying of one of the pressure groups in the weak country, thereby moving the trade policy of the developing country in favor of the powerful trading partner. Next we compare the effects of asymmetric foreign influence in a world with no WTO and no multilateral principles (most-favored-nation principle, MFN, and the negotiation principle of reciprocity) to a situation with WTO and its associated non-discrimination principles. We show that the weak, developing country will have fewer ‘unfair’ concessions of market openings and in general will be better off with the WTO and with rules of non-discrimination.

Modes of East Asian Trade and Foreign Direct Investment: U.S. and Japan

AbstractThe following sections are included:INTRODUCTIONPATTERNS OF TRADE IN EAST ASIAFOREIGN DIRECT INVESTMENT IN EAST ASIAGRAVITY EQUATIONESTIMATION RESULTSCONCLUSIONACKNOWLEDGMENTSAPPENDIX 1APPENDIX 2REFERENCESComment