THE IMPACT OF ECONOMIC POLICY CHANGE ON OUTWARD FOREIGN DIRECT INVESTMENT: EVIDENCE FROM CHINA’S INVESTMENT IN CANADA

Abstract

The resurgence of anti-globalization has made multinational companies concerned about the impact of host countries’ economic policy change on outward foreign direct investment (OFDI). However, existing studies mainly focus on improving a host country’s institutional environment but ignore the impact of anti-globalization policies. This paper aims to complement this line of research by considering the effect of one-time economic policy shock on OFDI. In particular, using a unique dataset, this paper empirically investigates the effect of Canada’s review policy on investments by Chinese state-owned enterprises (SOEs). The results suggest that an intensified review policy effectively discouraged Chinese SOEs from investing in Canada. However, as a coping strategy to the review policy, Chinese SOEs continued to invest in Canada by adding more funding to the existing projects, establishing new businesses or investing in small-scale deals.