The determinants of foreign direct investment in China

Over the last two decades, globalisation has led to the rapidly increasing growth of foreign direct investment (FDI) all over the world. China, one of the largest net importers of FDI in the world, represents a country with a substantial share of foreign ownership whose FDI experience has been largely overlooked in terms of a comprehensive economic analysis. Although China’s FDI stock was worth US$ 21034.42 billion in 2008, the second largest in the world, empirical work on FDI and its determinants is limited. After adopting the open door policy, China experienced a boom of inward foreign direct investment (FDI) by multinational corporations since 1980s. From an almost isolated economy, China turned to be the largest recipient of FDI in the developing world. This research provides a comprehensive analysis of the determinants of FDI inflow to China, specifically explains how FDI is influenced by the growth in GDP, exchange rates, international trade (import and export) and average income. The paper employs twenty-nine-years of annual data from 1980 to 2009 made available by the International Monetary Fund.