Contribution of China’s OFDI to Economic Growth of Developed Host Countries and Its Mechanism

ABSTRACT

Previous studies have shown that pathwise outward foreign direct investment can promote the long-term economic growth of developed economies and some developing countries with sufficient technology, human capital, and financial efficiency. However, the contribution of inverse outward foreign direct investment from developing countries, especially China, on the economic growth of developed economies has not yet been demonstrated. Based on the endogenous growth theory, this article uses panel data of China’s inverse outward foreign direct investment and economic growth indicators of 26 Organization for Economic Co-operation and Development countries from 2003 to 2017 to empirically study the contribution of China’s inverse outward foreign direct investment to the economic growth of developed economies and its mechanism, and furthermore to study the mediation effect of research and development capital and technological advances in the contribution. The empirical results show that China’s inverse outward foreign direct investment has a significant contribution to the economic growth of developed host countries, with a contribution rate of 3.01%. The contribution rate of the mediating effect is 24.3% when only considering technological advances and 54.34% when considering the multiple mediators of research and development capital and technological advances.