Spatial linkages in Chinese service and manufacturing outward FDI: Empirical evidence from the U.S.

The characteristics of neighbouring regions, namely third-region effects, have become major determinants of location decision for FDI. The literature on spatial effects primarily focused on FDI from advanced economies, while it remains unclear to what extent the spatial effects have influenced the location of FDI by different industries from emerging economies in a host country. Using data on Mainland Chinese outward FDI in the United States at the state level from 2005 to 2017 and a spatial Durbin model, this study presents empirical evidence on the positive influence of third-region effects on location decisions for Chinese OFDI. Specifically, Chinese OFDI in one state complements those in neighbouring states. In addition, manufacturing FDI tends to follow strategic asset seeking and is influenced by third-region effects, whereas service FDI focuses more on market seeking. Finally, this study shows that social-cultural networks considerably facilitate Mainland Chinese investments in overseas markets.