The Feedback Effect of Economic Conditions on Outward FDI Policy

Abstract

This paper studies the role of developments in firm internationalization, industrial catch-up, and macroeconomic home country stability on reactive outward foreign direct investment (OFDI) policymaking in an emerging market context. Drawing on theoretical policy change approaches of political science, I contend that the size of the developments that risk China’s economic stability is an essential factor for causing reactive OFDI policymaking. Studying the period of 1999 to 2019, this paper finds that while drastic changes on the firm, industry and macroeconomic level lead to reactive OFDI policymaking, it is only on the firm level where continuous change matters for policymakers.