Proceedings of World Business And Economics Research Conference
24 - 25 February, 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-45-0
Export-OFDI Relationship in China: Measurement and Assessment
Dongkun Li* and Ruxi Ding**
This paper builds up a Relative Revealed Comparative Advantage index and uses the
panel data of 167 countries and 9 years (2003- 2011) to calculate China’s RRCA
indicators and measure China’s export-OFDI relationship. We finds that: although
China’s outward FDI develops quite fast, it does not have comparative advantages
when comparing with China’s export in most host countries, especially in transitional
economies and developed countries. With little changes of China’s export-OFDI
relationships with developing countries, there are some big fluctuations and great
deviations among developed host countries over time. A significant increasing trend of
Chinese OFDI’s comparative advantages has revealed in most countries, OFDI is
playing a more and more important role in China’s economy.
Field：Economics
1. Introduction
Since the launch of economic reforms and opening up, China has become more active in integrating
into the world system. At the end of 2011, Chinese exported merchandise value reached
US$1898.381 billion, accounting for 10.48% of world‟s total exports and ranking 1st in the world.
Recently, China‟s new appearance as a global investor has drawn much attention as well. In 2011,
China provided US$74.654 billion to 177 foreign countries and districts with an annual growth rate of
44.6%, although trade, especially export, still holds the dominant position in China‟s economy.
However, situations in China and in the whole world are changing greatly. With the steady increase of
Chinese GDP per capita, encouragement of the “going global” policy, support of large foreign
exchange reserve and fierce competition home and abroad, entrepreneurs in China are more
motivated to invest abroad to pursue and build up their own international influences(Rasian et
al,2010). At the same time, global economic crisis in 2008 has stimulated the world‟s FDI and also
provides a good opportunity for Chinese investors to go outward. Considering the push and pull
factors in China and the world, we are expecting some changes in China‟s export-OFDI relationship.
Tracing this kind of changes can not only help us understand China‟s OFDI more objectively, but also
understand the performances of OFDI-related policies better. However, the study of this problem
requires an accurate and well-defined indicator. In this paper, we build up a new export-OFDI
indicator by introducing the idea of comparative advantage and appropriate standardization. Then we
use this indicator to measure and capture China‟s export-OFDI relationship with 167 countries from
2003 to 2011.
The rest of the paper is organized as follows: Section 2 presents an overview of the selective
literature. Section 3 shows how our indicator built up by comparing with the previous related ratios.
Then China‟s data is introduced, calculated and analyzed in Section 4, which not only verifies our
indicator‟s effectiveness, but also helps us understand more about Chinese OFDI‟s features. A
number of conclusions and are offered in Section 5.

*Dongkun Li, PhD student of International Business School, Southwestern University of Finance and Economics,
research scholar of New Zealand Contemporary China Research Centre, Victoria University of Wellington. Email:
dongkunli815@gmail.com.
**Ruxi Ding, PhD student of School of Economics, Southwestern University of Finance and Economics.
Email:xbr_2005@163.com.
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Proceedings of World Business And Economics Research Conference
24 - 25 February, 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-45-0
2. Literature Review
In classical and neoclassical trade theory, factor mobility is not allowed across countries. Trade in
goods and services can to some extent be considered as a substitute for factor movement. However,
after World War Ⅱ , factor mobility across national boundaries has been much more frequent.
International capital movement in particular has become fairly active that makes the traditional trade
theory fail in many aspects (Dunning, 1988). Considering these changes in international productivity,
new theories, such as Monopolistic Advantage Theory (Hymer, 1960) and Internalization Advantage
Theory (Buckley& Casson, 1976) were developed to explain the international capital motilities which
challenged export‟s dominant position. In 1980s, all the separate theories were integrated into a
holistic framework of eclectic paradigm by Dunning (1980) to explain the entrepreneurs‟ different
choices on licensing, export and FDI by evaluating their advantages in ownership, location and
internalization (OLI). According to the eclectic paradigm, enterprises of a country will choose to
license when they possess a relative ownership advantage, export if they have extra internalization
advantage and implement FDI when all sets of factors are favorable. However, this theory is too
micro-oriented to provide enough policy formation by home and host countries (Kojima, 1982) and too
static (Vernon, 1985).
The later concept of investment development path (IDP) engaged outward FDI with a country‟s
economic development (Dunning, 1981; Dunning, 1986; Dunning& Narula, 1996). Based on this
concept, a country‟s international direct investment will pass through from a stage of neither inward
nor outward international investment activity to a stage of a net investor with large-scale and highefficient inward FDI and outward FDI as the country‟s economic development proceeds (Chen et al,
2012).This dynamic and country-oriented theory makes great sense to the developing countries in
that outward investment‟ growth can be achieved naturally as their economic development reaches a
certain point. However, this concept does not tell us how export-FDI relationships or their strategic
priorities will change with the development of their economics.
Another group of theoretical and empirical studies on analyzing trade-FDI linkages is rather
inconclusive. By relaxing some rigorous assumptions of the traditional H-O theory, Mundell (1957)
drew a substitute relationship between trade and factor movement. Since then, more research was
done on this topic and the most prominent approach was proximity-concentration hypothesis explored
by Brainard (1993, 1997). By considering the trade-off of being close to the targeted market versus
concentrating production in one place to exploit the economies of scale, horizontal OFDI had a
certain substitution effect on export with the increase of distance, trade cost and the decrease of
production scale economies. This hypothesis has been extended and proved by much research
(Markusen et al., 1995; Helpman et al., 2004; Lankhuizen et al., 2011). On the other hand, Helpman
(1984) found a complementary relationship when modeling MNEs as vertical integrated firms. In
addition, Baldvin & Ottaviano(2001) even revealed the coexistence relationships of substitution and
complementation at the same time.
Therefore, we cannot simply tell what the trade-FDI linkage is, for it depends on the characteristics of
the chosen countries and industries. Even for the same country, different time periods and stages of
international activities may still lead to the variations of trade-FDI relationships (Aizenman& Noy,
2006; Pain&Wakelin, 1998). Hence, to capture and examine the changes of trade-OFDI relationship
of a country over time is much more meaningful than simply focusing on what the relationship exactly
is.
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Proceedings of World Business And Economics Research Conference
24 - 25 February, 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-45-0
3. The Methodology and Indicator Construction
In order to clarify China‟s export-OFDI relationships with host countries clearly and precisely, we need
to build up a new indicator. Empirically, the trade-OFDI relationship in most of the previous studies
was displayed by separate regressions on trade and OFDI and then contrasting their corresponding
coefficients. Oldenski (2012) takes one step further by introducing an export-FDI ratio, making it more
convenient to analyze different factors‟ effects on relative changes of export and FDI flows in the
same equation (Schmeiser, 2013). However, this indicator is not clear and precise enough to trace
and assess a country‟s export-OFDI relationship with host countries.
Firstly, export and OFDI cannot be compared with each other directly. Though export and OFDI
performance can to some extent reflect their comparative advantages, they belong to different
systems with different statistical methods. Also, there are great heterogeneities between export and
OFDI in their development levels, involved industrial groups and host countries. Therefore, we cannot
draw any meaningful conclusions from the changes of export-OFDI ratio, unless under the
assumption of uniformities in tastes, policies and influential factors.
Secondly, export and OFDI‟s inter-country differences and inter-industry disparities make the
assumption of uniform taste impossible in the real world. Policies on trade and OFDI are also distinct
and dynamic in view of a country‟s goals, strategies and development stages. Taking account of
these factors, separate consideration has to be given to the special circumstance that relates to
export or OFDI. However, this approach will reduce the generality of the comparisons across
countries in turn, which is a key problem to illustrate our topic.
Lastly, the evolution of economic development is not a mutational but progressive process. Absolute
values are less likely to catch all the subtle variations precisely and easy to cover the real gentle
movements of export or OFDI. Another important problem here is that the export-OFDI ratio cannot
treat export and OFDI equally, for it is too simple to exclude the historical factors‟ influences in that
export‟s long incumbent position is likely to cover the newly growing status of OFDI in this ratio.
However, the export-OFDI ratio‟s idea of putting these two together is helpful by making the
comparison between export and OFDI more convenient. A similar indicator of relative export
performance propounded by Lierner (1958) was used to describe the changes of different products‟
export relationship. Its defects of incomparability and inaccuracy were greatly minimized by Balassa
(1965) who came up with a new concept of “Revealed” Comparative Advantage (RCA). The RCA
indicator uses relative shares of different industries‟ trade performances to reveal their comparative
advantages (see formula (1)). Simply speaking, comparative advantage can be revealed when a
country‟s export proportion of a specific class is higher than its whole export proportion of the world in
the same class, namely RCA>1. RCA indicator‟s good characteristics of continuity and consistency
make it widely used in the world (Oelgemoller, 2013; Marconi, 2012). The great advantage of RCA
indicator lies in the way to make two different products comparable through appropriate
normalisation.
RCAij 
expix exp wx
 x1 expix  x1 expwx
(1)
Therefore, an extension of RCA indicator should be made to fit our requirements. Firstly, rather than
focusing on firm-level or industry-level variations, we concentrate on macro- oriented changes which
can not only give us a whole picture of export-OFDI relationship but also be easy for us to make
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Proceedings of World Business And Economics Research Conference
24 - 25 February, 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-45-0
comparisons across countries. Empirically, the limitation imposed by the availability of statistic data
makes it impossible for us to do micro-oriented indicator as well. Then, we build up a similar “relative
share” of export and OFDI respectively to standardise them by comparing the share of country i‟s
export/OFDI in the world‟s total export/OFDI to country j with country i‟s total export/OFDI proportion
of the world (see the following formula (2) (3)).
expij exp wj
(2)
RCAije 
 j 1 expij  j 1 expwj
RCAijo 

ofdiij ofdiwj
ofdiij
j 1

ofdiwj
j 1
(3)
Where subscript i represents the home country, j is the host country, w means the whole world,
e and o represent export and OFDI respectively. More specifically, the numerators in the formulas (2)
and (3) express the export(OFDI)‟s relative position of country in country j . The corresponding
denominators show the export (OFDI)‟s relative position of country i in the whole world. This ratio-type
indicator makes more comparable by considering their different statistical methods and historical
factors fully and depending less on the absolute value of export and OFDI. Lastly, RCAije and
RCAijo are put together to get a final indicator of Relative Revealed Comparative Advantage of country
i in country j ( RRCAij ) as follows.
RRCAij 
RCAije
RCAijo
(4)
Hence, it is much easier to track the changes of export-OFDI relationship by recoding RRCAij ‟s
changes. The relative comparative advantage of country i‟s export in country j can be revealed if
RRCAij >1, and vice versa, which will help us learn more about the structure and characteristics of
export-OFDI relationship.
4. China’s RRCA Indicator and the Findings
Based on the export and OFDI data from 2011 Statistical Bulletin of China‟s Outward Foreign Direct
Investment and UNCTAD Stat, China‟s RRCAcj indicators are calculated. After removing 10 samples
with 5-or-more years‟ data-missing, we get a panel data including 167 host countries (districts) and 9
years (2003-2011). Of all the selected countries, 114 are developing, 16 are transitional and 37 are
developed countries and districts.
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Proceedings of World Business And Economics Research Conference
24 - 25 February, 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-45-0
Table 1 description of
RRCAcj
indicators of overall samples and subsamples
distribution
the whole
samples
the developed
samples
The developing
samples
1%
0.005939
0.005852
0.00694
5%
0.054228
0.049781
0.055474
10%
0.113077
0.101856
0.113782
25%
0.419769
0.373551
0.426626
50%
2.123358
2.293773
2.092283
75%
13.62888
19.8142
12.16717
90%
54.01056
87.19782
48.38913
95%
142.9618
196.6633
127.296
99%
675.0904
1371.969
409.2719
 1(ratio)
36.8011%
4.9383%
46.281%
Mean
56.9242
116.8258
39.10223
Std. Dev.
513.3339
907.1059
310.349
Observation
1413
324
1089
Taking all the 1413 (167×9-90)1 RRCAcj data as a whole, 893 out of them are higher than 1,
demonstrating that export revealed more relative comparative advantage in most host countries (see
table 1). When dividing all samples into two groups: developed and developing countries, significant
differences are revealed. Firstly, on average China‟s RRCAcj ratio with developed countries is much
higher than that with developing countries. Higher RRCAcj indicator means higher relative
comparative advantage of exports. Therefore, export is still China‟s main way to access developed
markets. Secondly, 46.281% of China‟s RRCAcj ratios with developing countries are less than 1,
nearly 10 times of that with developed countries. This situation notes that China‟s OFDI revealed
more comparative advantages in developing countries. Lastly, the standard deviation among
developed countries is 907.1059 while that in developing countries is almost one third of the former.
Higher deviation of developed countries represents greater heterogeneity, indicating much more
complicated factors existed in developed countries that can affect the export-OFDI relationship.
Furthermore, another important aspect is to trace the changes of China‟s export-OFDI relationship
from the time dimension. However, a simple mean value of all the samples by year cannot describe
RRCAcj indicators‟ changing trend precisely. The reason lies in the asymmetric feature of
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Proceedings of World Business And Economics Research Conference
24 - 25 February, 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-45-0
RRCAcj indicator. That is, when 1 RRCAcj < +∞, export‟s relative comparative advantage is revealed
and 0≤ RRCAcj ≤1 reveals OFDI‟s relative comparative advantage. Therefore, 1 has been the
watershed with two disproportionate parts. The much wider value interval on the right side of 1 tends
to cover those less-than-one data on 1‟s left by simply averaging and a far larger-than-1 mean each
year will be obtained.
Here is a new method. Instead of treating all the countries individually, we classify and take them as
three groups: developing, transitional and developed economy. The greatest advantage of this
method is to give a clear interpretation of internal deviations with time. But its disadvantage of
ignoring the individual heterogeneity exists as well. All the export/OFDI data in each group are
summed up by year and put in the formula (4). Table 2 lists all the RRCAcj indicators of three groups
from 2003 to 2011.
Table 2
Type
Developing
economy
Transitional
economy
Developed
economy
RRCAcj
indicators of subsamples with time
2003
2004
2005
2006
2007 2008 2009 2010 2011
0.26
0.25
0.27
0.28
0.32
0.33
0.34
0.38
0.40
4.84
3.80
1.78
1.45
2.25
1.52
1.80
2.15
2.01
12.66 12.42 11.40 10.38
7.51
8.93
7.10
5.61
4.70
The gradient feature among different groups is quite evident. Changing from all the lower-than-1
values in the developing economy, via a little larger-than-1 data in the transitional economy,
RRCAcj Indicators in developed countries are comparatively high. This result is in line with the
discussions above. Roughly, all the indicators, except for those of the developing economy, show a
decreasing trend as a whole, especially the developed economy. The RRCAcj indicators‟ decreasing
trend of developed economy over time indicates a success of Chinese OFDI in competing with global
OFDI in developed economy. However, when looking into the detail information of 37 developed
countries, we find that China‟s RRCAcj indicators with most developed countries reflect a huge
fluctuation over time and 16 of them gain a rolling increase trend, which describes a deteriorating
comparative position of China‟s OFDI in these countries.
Therefore, China‟s export-OFDI relationships with developing or transitional countries are more
consistent, revealing a fair robust fact that China‟s OFDI becomes more influential in developing
countries when compared with its exports there. The export-OFDI relationships between China and
the developed countries are much trickier. On the one hand, Chinese OFDI do not have any revealed
comparative advantage in developed countries as a whole, export is still the main and more effective
way for China to enter into the developed countries. On the other hand, there is great heterogeneity
among developed countries, more than 56 per cent of the developed countries revealed an increasing
trend of Chinese OFDI‟s relative comparative advantage there. China‟s OFDI do have achieved much
progress in competing in developed countries.
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Proceedings of World Business And Economics Research Conference
24 - 25 February, 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-45-0
5. Summary and Conclusions
Since 2010, China has been the largest exporter in the world, although its role as the “world‟s factory”
faces many challenges because of its domestic rising labour wages and shrinking labour force.
Nearly in the same period, China‟s OFDI begins to shine not as a mirror of inward FDI, but as an
independent strong power. How will the traditional export interact with the new emerging OFDI as a
way to access the entire world? How will China‟s export-OFDI relationship change over time? This
paper has answered these questions and provided a much clearer and more objective analysis on the
relationship between China‟s OFDI and its export.
Based on the idea of revealed comparative advantage indicator and export-OFDI ratio, a new welldefined Relative Revealed Comparative Advantage indicator (RRCA) is proposed in this paper. This
country-oriented dynamic indicator has great properties of comparability and preciseness. By using
the panel data of 167 countries and 9 years (2003-2011), we calculated China‟s RRCA indicator to
measure China‟s export-OFDI relationships. This paper shows that China‟s OFDI does not cultivate
its relative comparative advantages in most host countries as a whole. Export, as a way to interact
with the world, still holds the predominant position in China. In developing countries, China‟s OFDI
revealed more comparative advantages than its export. Reasons mainly lie in the fact that China has
more cultural and institutional proximities with developing countries and developing countries‟
abundant natural resources attract more China‟s investment as well. With little changes of China‟s
export-OFDI relationships with developing countries, there are big fluctuations and great deviations in
the developed host countries over time. The greater is the deviation in China‟s export-OFDI
relationships with developed countries, the more complex is the overall analysis of treating developed
countries as a whole. By dividing all the samples into three categories, we capture the significant
internal gradient feature of China‟s export-OFDI relationship. An increasing trend of Chinese OFDI„s
comparative advantage is revealed in transitional economies and developed economies.
Hence, China‟s export-OFDI relationship does have some changes, although quite asymmetrical
between developing countries and developed countries. However, this kind of asymmetrical changes
may result from China‟s existing heavy industrial structure and extensive growth pattern and will in
turn strengthen the pattern. That is, the development of China‟s domestic economy calls for more
natural resource, investing in natural resource-abundant developing countries is an effective way to
support China‟s sustainable growth. However, at the same time, Chinese investment has got a lot of
criticisms and is regarded as “Avaricious Dragon” (Kolstad & Wiig, 2010) around the world which
increases great obstacles for Chinese OFDI to enter into more advanced countries, especially their
high-tech industries. This in turn to some extent prevent China‟s way from upgrading its economic
growth pattern, its industrial structure has to be strengthened. Therefore, investing in developed
countries and high-tech industries should be given more encouragement in China‟s investmentrelated policies.
End Notes
1. 90 is the number of missing data
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Proceedings of World Business And Economics Research Conference
24 - 25 February, 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-45-0
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