Panel data demonstrates a U-shaped relationship between outward foreign direct investments and home-region income, suggesting absorptive capacity plays a crucial role.
This article investigates whether a nonlinear relationship exists between outward foreign direct investments (OFDIs) from Chinese city-regions and home-region income, related to regional spillovers from access to foreign knowledge and markets. Using quadratic panel regressions from 2003 through 2016, we identify a U-shaped relationship between OFDIs and home-region income. When OFDI activity is low, OFDIs are negatively associated with home-region income due to limited absorptive capacity at an early development stage, but as investment activity intensifies, positive income effects dominate. We find that prior exposure to inward foreign direct investments (IFDIs) moderates this nonlinear relationship between OFDIs and home-region income.
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Yang et al. (2026) studied this question.
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