Exchange Rate Risk, Political Environment and Chinese Outward FDI in Emerging Economies: A Panel Data Analysis

This study attempts to investigate the effect of financial and political risk on Chinese outward FDI activities in 56 emerging economies for a period from 2003 to 2013.Exchange rate is taken as a main indicator of financial risks and political risks are evaluated using ICRG (International Country Risk Guide) index.Generalized method of moments with panel data of Chinese outward FDI (foreign direct investment) in new emerging economies is used to find how Chinese firms intend to invest abroad with respect to exchange rate level, volatility, and expectation.The major findings show that RMB appreciation proved to have a positive effect on Chinese outward FDI in emerging economies.But Chinese OFDI (outward foreign direct investment) seems not to respond to exchange rate volatility.The expectation of RMB's appreciation has positive effect on Chinese OFDI in emerging economies.Results also show that more political risk leads to more Chinese OFDI in emerging economies.