Diplomatic Relations and Investment Location of Chinese Multinationals: An International Political Economy Perspective

Abstract

Past research has suggested that diplomacy can play a significant role as a mechanism to pave the way for multinational enterprises (MNEs) in foreign countries. Drawing on the international political economy perspective, this article analyzes the influence of the diplomatic activities of the Chinese government on the location of Chinese MNEs. It develops several hypotheses regarding the influence of three essential tools in the Chinese government's current diplomatic agenda: high-level visits by the Chinese President, the establishment of Confucius Institutes, and the Belt and Road Initiative (BRI). The empirical analysis is based on a sample of 972 country–year observations from 2013 to 2021. The results show that high-level government visits and Confucius Institutes positively impacted the location of China's outward foreign direct investments, with the effect being lower in BRI countries. The impact of Confucius Institutes was higher for state-owned enterprises.