The impact of Chinese Outward Foreign Direct Investment on the comparative advantage of the Belt and Road countries

The present study investigates the impact of Chinese outward foreign direct investment (OFDI) on the comparative advantage (CA) of the Belt and Road countries (BRCs). This study uses the national-level panel data of Chinese OFDI flowing into 62 BRCs and disaggregated sectoral data from BRCs categorised by factor intensity from 2003 to 2017 and applies dynamic system generalised method-of-moments (GMM) estimators with instrument variables. The findings suggest that Chinese OFDI has a strong positive effect on the CA of BRCs in natural resource-intensive industries, a relatively weak positive effect on the CA of BRCs in labour-intensive textile, garment and footwear sectors, and a negative effect on the CA of BRCs in other labour-intensive sectors. Additionally, Chinese OFDI has a negative effect on the CA of BRCs in capital- and technology-intensive sectors, but the impact is positive in high-income BRCs. In contrast, non-Chinese OFDI shows a negative effect on the CA of BRCs in the natural resource industry, while non-Chinese OFDI significantly promotes labour-intensive industry and capital technology-intensive industry. Under the Belt and Road Initiative, BRCs are required to facilitate or prioritize Chinese investment in sectors complying with their own development strategies and resource endowments.