Chinese Foreign Direct Investment in Latin America: An Analysis of the Motives and the Applicability of Existing FDI Theory

Michael Rukundo Knabe & Leonardo Berardi

Student thesis: Master thesis

Abstract

Chinese outward foreign direct investment (FDI) in Latin America has increased significantly in recent years, especially in the period after the global crisis of 2007-2008. As China’s growing involvement in the region has just started to evolve, the phenomenon is still poorly understood and has not been subject to broad empiric research. This thesis thus attempts to identify the motives that drive such FDI from China, by adopting panel data analysis of 15 years of Chinese FDI activity across 17 Latin American countries. In order to locate potential implications emerged after 2007, a structural break is introduced to best capture the differences between before and after the crisis. Also, a comparative analysis with The Netherlands is carried out in the last part of this thesis, in order to investigate on the potential differences that drive FDI into Latin America between China and developed economies. To provide theoretical support to the analysis, the authors extensively review the main theories regarding FDI theory, highlighting the main studies from the literature. Then, through a critical screening, the most relevant concepts are nested to develop the underlying hypotheses for the statistical regression. In particular, 3 different models are adopted throughout this thesis to investigate on the FDI drivers of Chinese FDI outflows in Latin America. While the first is based on concepts from mainstream FDI theory, the second model introduces elements of social and political ties between China and the host country, in order to verify the existence of unique investment motives. A third model is then introduced with the purpose of testing for possible differences with investors from developed countries. This thesis finds that traditional FDI theories are well explanatory of Chinese investment activities in Latin America, while little or no empirical evidence is found in support of existing social and political linkages. Moreover, some of the motives that drive Chinese FDI into Latin America appear to be different when compared to the case of The Netherlands. In particular, the role of institutions, the cultural distance and the presence of natural resources in the host country seem to be unique driving factors for China.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2017
Number of pages164
SupervisorsAri Kokko