Contemporary Logistics Path Based on IDP and IPI Models

Contemporary Logistics 06 (2012) 1838-739X
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Contemporary Logistics
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An Empirical Analysis on Chinese Outward FDI Development
Path Based on IDP and IPI Models
Kun MA*
School of Economy and Management, Shenyang University of Chemical Technology, 110142, P.R. China
KEYWORDS
ABSTRACT
Investment Development Path (IDP),
Investment Position Index (IPI),
Chinese Outward FDI
With the updated data, this paper revaluates and relocates the Chinese Outward FDI
development path based on IDP and IPI model, and makes the conclusion that IDP theory is
generally suitable for China. According to the empirical analysis based on IDP and IPI
models, this research finds Chinese Outward FDI has entered into the third stage since
2005. At the end of this paper, the volume of Chinese Outward FDI is forecasted
scientifically.
© ST. PLUM-BLOSSOM PRESS PTY LTD
1 Introduction
Nowadays, some foreign researchers have tested and verified the IDP theory developed by Dunning in 1981 to some extents,
including Tolentino (1993), Dunning and Kin Li (2001). Chinese researchers also have tested it according to Chinese situation, they
are Liu Hongzhong (2001), Gao Minxue and Yu Lina (2005), Xue Qiuzhi and Zhu Jiqing (2007). Although some studies have
empirically analyzed Chinese situation, there are still some problems such as conclusion discrepancy, out of dated data, and
one-sided explanation and conclusion. So this paper will retest the Chinese Outward FDI development path with the updated data,
and point out the real stage we are in, and hope to forecast the volume of Chinese Outward FDI scientifically.
2 An Empirical Analysis Based on IDP Model
2.1 IDP theory
IDP theory was developed by Dunning, and supplemented by his student. Dunning divided national economic development and FDI
into 5 stages by per GNP as the main indicator. Generally, starting with the stage of early development, through to the fifth or last
stage, which is represented by today’s developed countries. Can Chinese outward investment be explained by Dunning’s IDP theory
or rather by some specific scenarios of transitional countries and developing countries? This research will use updated data and try to
test IDP theory’s availability in China.
*
Corresponding author.
Email: [email protected]
English edition copyright © ST. PLUM-BLOSSOM PRESS PTY LTD
DOI: 10.5503/J.CL.2012.06.014
81
2.2 Empirical analysis
2.2.1 Origin of data
This paper chooses Chinese outward FDI data in the years from 1985 to 2008 (see Table 1). And according to Yang Dakai’s
conclusion (2006), †per GNP can be substituted by GDP per capita, so this paper use per GDP to use.
Table 1 Chinese GDP pre capita and outward FDI (100 million $)
Year
outward FDI
Increase
rate
Inward FDI
1985
6.29
1986
4.50
-28.46%
22.44
1987
6.45
43.33%
1988
8.50
1989
Increase rate
Net outward
FDI
GDP pre
capita($)
-13.27
290.05
14.72%
-17.94
276.81
23.14
3.12%
-16.69
296.41
31.78%
31.94
38.03%
-23.44
364.01
7.80
-8.24%
33.93
6.23%
-26.13
400.44
1990
8.30
6.41%
34.87
2.77%
-26.57
341.35
1991
9.13
10.00%
43.66
25.21%
-34.53
353.27
1992
40.00
338.12%
110.08
152.13%
-70.08
416.68
1993
44.00
10.00%
275.15
149.95%
-231.15
517.41
1994
20.00
-54.55%
337.67
22.72%
-317.67
466.6
1995
20.00
0.00%
375.21
11.12%
-355.21
601.01
1996
21.14
5.70%
417.26
11.21%
-396.12
699.41
1997
25.62
21.19%
452.57
8.46%
-426.95
770.59
1998
26.34
2.81%
454.63
0.46%
-428.29
817.15
1999
17.74
-32.65%
403.19
-11.31%
-385.45
861.21
2000
9.16
-48.37%
407.15
0.98%
-397.99
945.6
2001
68.85
651.64%
468.78
15.14%
-399.93
1038
2002
25.18
-63.43%
527.43
12.51%
-502.25
1131.8
2003
28.55
13.38%
535.05
1.44%
-506.5
1269.8
2004
55.30
93.70%
606.30
13.32%
-551
1486
2005
122.61
121.72%
603.25
-0.50%
-480.64
1709.9
2006
211.6
72.58%
694.68
15.16%
-483.08
2022
2007
265.10
25.28%
745.2
7.27%
-480.1
2483
2008
521.50
96.72%
924.0
23.99%
-402.5
3180.4
19.56
Data come from www.unctad.org, www.stats.gov.cn, www.imf.gov
2.2.2 Model layout
According to the broken line graph for the relations between Net outward FDI (NOI) and per capita GDP (PGDP). (See Figure 1)
†
Yang Dakai. Research on Chinese enterprises outward FDI. Shanghai: Lixin Accounting Publishing House, 1 (2006),
82
p122-123 (in Chinese)
NOI
0
-50
-100
-150
-200
-250
-300
-350
-400
-450
-500
-550
-600
3600
3300
3000
2700
2400
2100
1800
1500
1200
900
600
300
0
PGDP
Figure 1 NOI and PGDP
Considering of there would be nonlinear relation, so we set the regression equation as follows:
NOI= a + βPGDP + ΓPGDP2 + ε
Here, a is the distance part, β and Γ are coefficients, and εis random disturbance term. After the regression analysis (OLS), we get the
results as follows:
NOI= 145.852 – 0.751PGDP + 0.00019058PGDP2
(1)
(3.226) (-9.308)
(7.394)
R2=0.848, F=58.555
2.2.3 Primary conclusion
The regression result can pass the tests, with higher significance level, which can identify the IDP theory can be used in researching
Chinese outward FDI development path.
Such being the case, this paper continues to test IDP theoretical feasibility for each stage in China. From the trend shown in the figure
1, we know that Chinese net outward FDI slid down since 1985 obviously, although there was reboundance during 1998-2001, and
reached a low point historically in 2004; from then on, Chinese NOI improved in the following 4 years, only with the little downturn
in 2006. According to IDP model, with such continuing increase in NOI for 4 years, China can be judged as having entered into the
third stage form 2005. ‡At the same time, Chinese PGDP has reached USD 2022, it is one of the typical symbol too.
2.2.4 Query
According to IDP theory, in the third stage, with the further development in per GDP, inward FDI in one country is to be decreased,
while outward FDI will increase quickly.
But from the data shown before and some special years, Chinese inward and outward FDI have similar increasing trends. After 2004,
we did not find increasing rate in inward FDI has any drop as predicted in IDP theory, but tend to increase stronger. This make us
have to find further proof to test and posit Chinese outward FDI develop path and stage.
3 An Empirical Analysis Based on IPI Model
3.1 Introduction of IPI index
In order to test Chinese Outward FDI development path more scientifically, and diminish upper query, we introduce a new index
here---Investment Position Index, IPI§.
It was defined as:
IPI=（outward FDI-inward FDI）/ inward FDI
That means: if IDP theory is correct, IPI index will show different situations. For instance, in the first stage, inward FDI is zero, so
IPI is not exsist; if inward FDI happens in a country, IPI will between -1 and 0, it means this country must be in II or III stage, begin
to accept international invest, and invest a little outwards, but inward FDI accounts for main part. Here, the criterion for II and III
stage is the slope of IPI curve; if IPI is above 0, means the country has become the net supplier in international investment that is the
IV stage in IDP theory.
If IPI is above 1, no any significance except high volume of net FDI.
In the fifth stage, IPI will drop from the peak, and at last, the number will fluctuate around 0. (See Figure 2)
‡
Chen Bingyang, Zhou Xueming. On Applicability of Theory of International Direct Investment Cycle. Journal of Zhejiang University of Science
and Technology, 6 (2007): p138-141 (in Chinese)
§
Zhao Haibo. Empirical Analysis on the Trend of International Investment in East Asia, World Economy Study, 4 (2006): P59-63 (in Chinese)
83
NOI
IPI
II1
II2
III
IV
V
Figure 2 IPI and 5 stages
3.2 An empirical analysis based on IPI model
3.2.1 IPI index analysis
According the data in table 1, we can get the changing tendency of IPI index easily. (See Figure 3)
IPI
-0.2
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
0
-0.4
-0.6
-0.8
-1
-1.2
year
Figure 3 IPI index change (1985-2008)
The line shows to us that, in the first 10 years, IPI fluctuated quickly, this may because of the irregular investment behaviors in China
at the beginning, but since 1994, IPI maintain near to -1 generally. From 2004, 10 years after 1994, IPI curve slope seems to be above
1, and from then on, get such trend continued.
3.2.2 Conclusion
Until now, with IPI index and the primary conclusion, we can get the final conclusions that: since 2005, China has entered into the
third stage, in which year Chinese OFDI was USD 5.5 trillion, and IFDI reached USD 60.63 trillion, NFDI was USD -55.1 trillion,
per GDP was USD 1486 in that year, less than USD 2000, required in IDP theory for the third stage. Such volume is met until 2006.
This might because of Chinese huge population, diminish the GDP level.
4 Forecast for Chinese Outward FDI Scale
Model equation (1) shows us the relation of NFDI and economic develop in on country. We will continue to find the extreme value
and average critical value for China.
According to equation (1), we get
NOI= 0.00019058（PGDP - 1970.3）2- 593.996
(2)
Equation (2) means, when PGDP=1970.3, Chinese NOI will reach the lowest point, it will be USD-59.4 trillion. If Chinese PGDP
surpasses that point, Chinese OFDI must go into the third stage (in 2004, this has come true).
And another important result from the equation is the significance of average critical value. If NOI=0, we get the intersection with
horizontal axis is PGDP=3735.7414, from that point, NOI of China will change into positive, that means, from then on China will
enter into the forth stage in FDI. According to the upper analysis, the PGDP level is a theoretical number, China will become huge
investor in the world earlier.
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5 Conclusion
According to the analysis, this research gets the conclusions as the following: (1) IDP theory is generally suitable for China. (2) With
continuing increase in NOI for 4 years, China can be judged as having entered into the third stage form 2005. But Chinese reality is
not same as Dunning’s prediction. (3) We find further proof to test and position Chinese outward FDI developing path and stage by
the empirical analysis based on IPI theory. (4)When Chinese GDP per capita equals to $3735.7414, from that point, NOI of China
will change into positive that means, from then on China will enter into the fourth stage in FDI.
References
[1]. Dunning, J. H. Trade, Location of Economic Activity and the Multinational Enterprise: A Search of an Eclectic Approach.
Macmillan, London, 1997
[2]. Paul R.Krugman, Rethinking international trade. Beijing: Social Sciences Press, 2001 (in Chinese)
[3]. JIANG Xiaojuan. New Stage of China's Opening Up: Integration into the Global Economy in More Balanced Approach. Study
on China Administration for Industry & Commerce, 8 (2006): p29-33 (in Chinese)
[4]. YANG Runsheng. International FDI Theories and Chinese Outward FDI. Truth Seeking, 12 (2004): P54-56 (in Chinese)
[5]. XIANG Benwu. Empirical Research on the Features of Host-country and China, Direct Investment Abroad. The Journal of
Quantitative & Technical Economics, 7 (2009): p33-46 (in Chinese)
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