The theoretical systems of OFDI location determinants in global north and global south economies

Abstract

Abstract With economic transformation and industrial development, Outward Foreign Direct Investment (OFDI) from southern countries has increased rapidly. The theoretical system established by global north countries with their dominant position in the international investment market has been impacted by global south countries. The existing OFDI theory has always been based on developed countries and can only explain some international investment behavior of southern countries. The Vector Error Correction Model (VECM) is applied to conduct empirical analysis for the impact of the target country’s investment climate on the location determinants of OFDI, by applying China and the United States as example which is focusing on 172 countries from 2005 to 2019. The results reveal significant differences in the theoretical system of foreign investment between China and the United States. For China, investment climate factors such as energy, logistics infrastructure, and politics are discover as the main drivers of China’s OFDI. However, USA’s OFDI is a corporate behavior aimed at economic interests. The differences in OFDI theoretical systems and provides policy advice for northern and southern countries and departments is the major contribution of this research.