Undergraduate Honors Theses

Thesis Defended

Spring 2019

Document Type

Thesis

Type of Thesis

Departmental Honors

Department

Political Science

First Advisor

Dr. Andrew Baker

Second Advisor

Dr. Jennifer Fitzgerald

Third Advisor

Dr. Timothy Weston

Abstract

What explains foreign direct investment (FDI) from China? It has been assumed by many scholars that investment climate matters when selecting a location of FDI. Factors such a level of corruption, quality of government, and strength of political institutions, tend to attract more FDI. Despite this, China’s One Belt, One Road initiative (BRI) is pouring billions of dollars into some of the most politically unstable and corrupt countries in the world. The goal of this paper is to understand why China invests into these corrupt countries, while many other actors do not. I argue that China has the confidence to invest into corrupt counties by using foreign aid as a strategic policy tool to maintain control over their investments. In doing so, China eliminates the negative effects associated with corruption. Generating an economic dependency through development assistance, China is able to secure long-term bargaining power over its FDI by increasing or decreasing aid when need be. To test my argument, I conduct both quantitative and qualitative analyses. Outflows of Chinese FDI were tested against outflows of Chinese foreign aid into 140 countries over the duration of 10 years. I find that there is a positive and statistically significant relationship between the foreign aid and FDI variables. As foreign aid increases, so does FDI. Cambodia is also examined as a case study for the purpose of this research. Through qualitative analysis, I find that the positive and statistically significant relationship between FDI and aid holds true in Cambodia.

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