"Foreign Direct Investment and Ethnic Chinese Networking"
Institution(s): Hong Kong Institute of Economics and Business Strategy Seminar
Date: Apr 27, 2000 (Thursday)
Time: 04:30 pm - 06:00 pm
Venue: Conference Room, Room 910 KK Leung Building,
Ethnic Chinese entrepreneurs are known for their active domestic and cross-border business networking practices, particularly in Southeast Asia. This paper empirically investigates the role of ethnic Chinese networking in promoting FDI. Using a standard gravity model to estimate bilateral FDI among 71 economies, I find that ethnic Chinese networks seem to be important in facilitating FDI between countries. The capacity of ethnic Chinese networks between two countries, approximated by the product of the numbers of ethnic Chinese in each of the two countries, is positively correlated with the amount of FDI between the two. There is evidence that the effects may differ in magnitude for country pairs within Southeast Asia compared with other country pairs. However, the results suggest that ethnic Chinese networking seem to significantly increase bilateral FDI for all country pairs in the sample. In addition, there is no evidence supporting the argument that ethnic networking is only effective in countries where economic and legal institutions are under-developed and/or where corruption is prevalent. The results remain valid when alternative measures are used to account for the effect of common language shared by the two countries on FDI as well as when investments among mainland China, Taiwan, and Hong Kong are excluded from the analysis.