Foreign Direct Investment in East Asia and Latin America: Is there a People's Republic of China Effect?

Chantasasawat, Busakorn;
Fung, Kwok Chiu;
Iizaka, Hitomi;
Siu, Alan
Dec 2004
In recent years, the People's Republic of China (PRC) has emerged as the largest recipient of foreign direct investment (FDI) in the world. Many analysts and government officials in the developing world have increasingly expressed concerns that they are losing competitiveness to PRC. Is PRC diverting FDI from other developing countries? In this paper, the authors explore this important research and policy issue empirically. They focus our studies on East and Southeast Asia as well as Latin America, and control for the standard determinants of their inward direct investment. They then add PRC's inward foreign direct investment as an indicator of the "PRC Effect". Estimation of the coefficient associated with the PRC Effect proxy gives us indications about the existence of the PRC Effect. This paper was prepared for Latin America/Caribbean and Asia/Pacific Economics and Business Association (LAEBA)'s First Annual Meeting held in Beijing, China on December 3rd-4th, 2004.