3 The determinants of FDI

Dunning (1981), based on The Eclectic Paradigm of International Production, pointed out that market size has influenced MNEs ’ overseas investment. That is to say, host countries, with large market size, are more likely to provide MNEs with access to Economics of Scale to attractive more investors. Chakrabari (2001) and Bevan and Estrin (2004) reported that inflows of host countries have positive correlation with their GDP per capita。The increasing GDP may promote inflows of host countries. A lot of researchers have examined that market size has made a significant contribution to the attractiveness of host countries.

As for China, foreign-market-seeking FDI is often preferred. On the one hand, some African countries with undeveloped economies, are usually limited in the production of goods locally. In that case, China’s MNEs can invest directly to produce the goods that are in great demand locally, so as to obtain profits by selling these locally scarce goods. On the other hand, investing in some of African countries with comparatively developing economies, is likely due to their comparatively higher GDP per capital. So people there perhaps have greater desire for purchasing, and are more reliable source of paying cashing. From this point of view, those countries are more attractive to investors.

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