Emerging Economies in the Global Economy:China’s and Brazil’s Direct Investment to and from the EU
|Author||STEPHAN THOMAS WORACK|
|Keywords||FDI ODI determinants China Hong Kong Brazil EU|
This paper describes and analyses the nature and development of the Foreign Direct Investment of the world’s largest emerging economies, China and Brazil, with the European Union. Starting from a description of the shift in the inward and outward global direct investment flows, the paper discusses the determinants of these flows and explains the role of China, including its special administrative region Hong Kong, and Brazil. The paper then analyses in particular the Outward Foreign Investment and its determinants from both economies into the European Union, the world’s largest investor and their respective largest trading partner. Based on a literature review on the determinants of Outward Direct Investment and a description of China’s direct investment activities, Chinese foreign direct investment’s determinants are tested empirically utilizing panel data for the EU27countries from2000to2010by Eurostat. The estimation results suggest that Chinese ODI into the EU is driven by market-seeking factors. The analysis of China’s and Hong Kong’s combined ODI shows that the host country’s absolute size of GDP, trade openness and Chinese exports of services to the respective host country are significantly positively associated with Chinese ODI into the EU15countries. As for the EU12countries, a higher property rights protection and Chinese services exports to the recipient country have been found significantly positively related to Chinese ODI, suggesting an additional strategic asset seeking motive of Chinese investors.Moreover, as a subsequent descriptive analysis shows, Brazilian ODI into the EU has exploded during recent years and is, apart from its investments to Luxembourg, found to be determined by cultural proximity, i.e. focused on Spain and Portugal.