The purpose of this paper is to examine whether multinational corporations moving into China have a negative impact on the extent of foreign firms moving into other developing countries in East Asia, Latin America and Eastern Europe.
The paper controls for a comprehensive set of determinants of why multinational enterprises enter the economies of East Asia, Latin America and Eastern Europe and then adds and examines the instrumented foreign direct investment flows into China to proxy the impact of China on these other economies.
It was found that the multinational enterprises entering into China stimulate investment in east Asia, but have no significant effects on multinational enterprises entering into Eastern Europe and Latin America.
Owing to data constraints, it was not possible to examine if these conclusions hold for different sectors such as the automobile and electronics sectors.
Governments in developing countries should focus on increasing their attractiveness to multinational enterprises. Policies such as lowering of the corporate tax rates should help.
The paper includes a very comprehensive set of factors and then uses foreign direct investment flows into China as a proxy for the impact of China on other economies.
