The purpose of this paper is to analyze the impact of diplomatic activities on outward foreign direct investment (OFDI).
The paper first develops a set of hypotheses drawing insights from politics, international business and institutional theory. It then tests these hypotheses by estimation of Panel Corrected Standard Error models, using the data of Chinese OFDI flow to 131 countries over the period of 2003-2010.
The main findings are: friendly bilateral diplomatic activities help OFDI in general; bilateral diplomatic activities provide effective support to some sensitive and important investments; and bilateral diplomatic activities play an important role in host countries where institutions are absent or poor in quality.
Friendly bilateral diplomatic activities provide strong support to multinationals investing abroad.
The paper incorporates a neglected but important factor, diplomacy, into a model to analyze its influences on OFDI. It investigates not only the direct impact of diplomatic activities on OFDI but also their moderating effect on other OFDI determinants, such as economic and institutional factors.
JEL Classification — F21
The authors thank four anonymous reviewers and editor Ilan Alon for their insightful and constructive comments and suggestions. The authors are grateful for the helpful comments and suggestions from participants at 6th China Goes Global Conference at Harvard University.
Zhang, J., Jiang, J. and Zhou, C. (2014), "Diplomacy and investment – the case of China", International Journal of Emerging Markets, Vol. 9 No. 2, pp. 216-235. https://doi.org/10.1108/IJoEM-09-2012-0104
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