Theoretical Modeling of the Impact of Political Ties on China’s Economic Expansion

Until recently, attracting FDI was officially a key priority of Chinese economic policy, but there has been a gradual shift in the focus on outward foreign direct investment (OFDI) from China. China’s OFDI is characterized by several features, due to the specifics of the economic model of this country. Thus, the economic expansion of China and other emerging countries requires the development of a new theoretical model that would analyze the characteristics of foreign direct investment in a specific financial and institutional environment. The theoretical model was developed based on the study of Helpman (2004) focused on the influence of enterprise political relations on OFDI decisions and the relationship between political relations and productivity in management decisions. Several hypotheses follow from the theory: (a) the thresholds for political ties and productivity required for FDI increase as the recipient country’s investment climate deteriorates; (b) the growth of political ties and productivity growth increases the likelihood of OFDI.