Theoretical Modeling of the Impact of Political Ties on China's Economic Expansion

Author

Department of International Economic Relations, Ivan Franko National University of Lviv, Lviv, Ukraine.

Abstract

Until recently, attracting FDI was officially a key priority of Chinese economic policy, but there has been a gradual shift in the focus on outward foreign direct investment (OFDI) from China. China's OFDI is characterized by several features, due to the specifics of the economic model of this country. Thus, the economic expansion of China and other emerging countries requires the development of a new theoretical model that would analyze the characteristics of foreign direct investment in a specific financial and institutional environment. The theoretical model was developed based on the study of Helpman (2004) focused on the influence of enterprise political relations on OFDI decisions and the relationship between political relations and productivity in management decisions. Several hypotheses follow from the theory: (a) the thresholds for political ties and productivity required for FDI increase as the recipient country's investment climate deteriorates; (b) the growth of political ties and productivity growth increases the likelihood of OFDI.

Keywords

References

Chaney, T. (2013). Liquidity Constrained Exporters. Working Paper, 19170, 1-17.
Charumilind, C., Kali, R., & Wiwattanakantang, Y. (2006). Connected Lending: Thailand before the Financial Crisis. Journal of Business, 79(1), 181-217.
Chen, M. X., & Moore, M. O. (2010). Location Decision of Heterogeneous Multinational Firms. Journal of International Economics, 80, 188-199.
Claessens, S., Feijen, E., & Laeven, L. (2008). Political Connections and Preferential Access to Finance: The Role of Campaign Contributions. Journal of Financial Economics, 88(3), 554-580.
Faccio, M., Masulis, R. W., & McConnell, J. J. (2006). Political Connections and Corporate Bailouts. The Journal of Finance, 61(6), 2597-2635.
Fisman, R. (2001). Estimating the Value of Political Connections. American Economic Review, 91, 1095-1102.
Goldman, E., Rocholl, J., & Jongil, S. (2009). Does Political Connected Boards Affect Firm Value? The Review of Financial Studies, 22(6), 2331-2360.
Helpman, E., Melitz, M. J., & Yeaple, S. R. (2004). Export versus FDI with heterogeneous firms. American Economic Review, 94, 300-316.
Hericourt, J., & Poncet, S. (2007). FDI and Credit Constraints: Firm-Level Evidence in China. Economic Systems, 33, 1-21.
Johnson, S., & Mitton, T. (2003). Cronyism and Capital Controls: Evidence from Malaysia. Journal of Financial Economics, 67, 351-382.
Khwaja, A. I., & Mian, A. (2005). Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market. Quarterly Journal of Economics, 120(4), 1371-1411.
Li, H., Meng, L., & Zhang, J. (2006). Why Do Entrepreneurs Enter Politics? Evidence from China. Economic Inquiry, 44(3), 559-578.
Manova, K. (2013). Credit Constraints, Heterogeneous Firms, and International Trade. Review of Economic Studies, 80(2), 711-744.
Mian, A., & Khwaja, A. I. (2008). Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market. American Economic Review, 98(4), 1413-1442.
Roberts, B. E. (1990). A Dead Senator Tells No Lies: Seniority and the Distribution of Federal Benefits. American Journal of Political Science, 34(1), 31-58.
Ukrainets, L. (2014). The Impact of International Migration on Trade And Foreign Direct Investment between China and African Countries. Visnyk of the Lviv University, Series Economics, 51, 429-437.
Iranian Economic Review
Volume 27, Issue 1
May 2023
Pages 121-134

Files

Share

How to cite

Statistics