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What drives Chinese outward manufacturing investment? A review of enabling factors in Africa and Asia

Working paper

Written by Linda Calabrese, Stephen Gelb

Working paper

Foreign direct investment (FDI) has been regarded positively in development as, under the right conditions, it can provide significant benefits to the host economy. The pathways through which FDI affects development include employment creation, transfer of skills and technology (and the associated productivity impact) and generation of income and revenue. Economic theory suggests that rising costs of production in one country can prompt firms to relocate parts of the production process to other countries where factors of production are cheaper, more abundant and of better quality. If well managed, this process can be an opportunity for the host country, generating increased employment and income.

Changing conditions in the Chinese economy, including rising wages, pose a potential opportunity for low-income countries in Africa and Asia. If the manufacturing jobs that are moving within China were to shift outside of China, developing countries could position themselves to attract these jobs. How can developing countries grasp this opportunity? This study looks at selected factors that could help attract China's FDI.

Linda Calabrese, Stephen Gelb and Jun Hou