Outward FDI and Entrepreneurship: The Case of China

Outward foreign direct investment (OFDI) from developing countries, like China, has been growing significantly so far. However, there is surprisingly little research on the effects of OFDI on the home county's entrepreneurship. In this paper, we initially examine the characteristics of China's OFDI during the country's economic reform and opening up. We subsequently test for the hypothesis that Chinese OFDI, along with the Chinese entrepreneurial institutional environment and inward FDI, impacted entrepreneurial activities from the year of 2004 to 2015. We find that OFDI has an inverted "U" effect on entrepreneurial activities, and that the impacts of inward FDI as well as the foreign trade are different in the coastal and non-coastal cities. We conclude by discussing the implications of our findings for researchers and policymakers as well as the limitations of our data.