Original scientific paper
https://doi.org/10.1080/1331677X.2020.1755880
Does bilateral political relations affect foreign direct investment?
Yu Song
Bo Chen
Ran Tao
Chi-Wei Su
Adelina Dumitrescu Peculea
Abstract
This article employs the bootstrap Granger full-sample and subsample
rolling window estimation to explore the time-varying
property between bilateral political relations and foreign direct
investment based on Sino-Japanese relations. The result identifies
a one-way causal nexus running from bilateral political relations
to foreign direct investment. Bilateral political relations have both
positive and negative influences on foreign direct investment
inflows in different sub-stages, but merely negative impacts on
outflows. However, the reverse causality has not been proven,
which is inconsistent with the model of Polachek et al. that the
increased foreign direct investment is conducive to improving
bilateral political relations. We also divide the BPR into two
dimensions: leader’s visits and diplomatic conflicts to examine the
role of specific political actions. Leader’s visits can significantly
increase FDI inflows and outflows, but diplomatic conflicts have
less impact on FDI. China and Japan should increase dialogue to
ensure bilateral relations’ stability and seek common ground in
economic interests, ultimately providing investors with a favorable
political environment.
Keywords
Bilateral political relations; foreign direct investment; bootstrap rolling windows; Sino-Japanese relations
Hrčak ID:
254460
URI
Publication date:
9.2.2021.
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