China’s Investment Contributes to Stability in Host Countries

Wang Bijun (王碧珺)1* , Du Jingxuan (杜静玄)2 and Li Xiuyu (李修宇)3

1 Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS), Beijing, China

2 Maxwell School of Citizenship and Public Affairs, Syracuse University, New York, USA

3 Department of International Relations of the School of Social Sciences, Tsinghua University, Beijing, China; Paul H. Nitze School of Advanced International Studies (SAIS), Johns Hopkins University, Maryland, USA

Abstract: As intra-national conflicts replace international wars to be the dominant form of collective political violence, the international dimension of domestic conflict has prompted reflections on the effects of globalization and multinational corporations represented by international investment. Theoretically, international investment may trigger or defuse conflicts. Although China is the world’s second largest source of outward foreign direct investment (OFDI), there has been limited empirical literature on how China’s OFDI has influenced domestic conflict in host countries. Based on the OFDI data of 115 developing countries from 2004 to 2016, this paper offers an empirical study on the effects of China’s OFDI on the eruption of domestic conflict in host countries and the underlying mechanisms. Results suggest that China’s OFDI in developing countries has made domestic conflict significantly less likely to erupt in those countries primarily by reducing the unemployment rate. These findings reflect the contribution of China’s investment to the internal stability of host countries. However, problems in the overseas operations of Chinese companies cannot be overlooked.

Keywords: outward direct investment, domestic conflict, developing countries, unemployment rate

JEL Classification Code: F21, F23, L21

DOI: 10.19602/j.chinaeconomist.2021.07.06