Impact of China’s OFDI to the Greater Mekong Subregion (GMS)

Abstract

The study aims to investigate the impact of China's outward foreign investment (OFDI) in Cambodia, Laos, Myanmar, Vietnam, and Thailand (CLMVT). The motivation behind this paper is to examine a pivotal role in determining the macroeconomic factors in these five hosting countries as the “neighboring model” of China. Using panel data for China's outward to her five neighboring countries in the Greater Mekong Subregion (GMS) for the period 2007–2019. This paper uses two different panel specifications models named correlation from classical statistics and Bayesian statistics where empirical results of this research qualify that China's OFDI is the main factor to have a positive influence on the macroeconomic factors in CLMVT.Highlights The GMS region is currently challenging the general FDI theory from the “neighboring model” of China’s going global” strategy using OFDI as a pioneer for success for the small developing country namely, CLMVT. Many studies showed that the implementation of the “Belt and Road” strategy will help China increase investment in countries along the route, which will further promote the implementation of the “on going” strategy since 2013. We use panel data for China's outward to her five neighboring countries in the Greater Mekong Subregion (GMS) for the period 2007–2019, measures the potential of China’s outward foreign direct investment by using two different panel specifications models named correlation from classical statistics and Bayesian statistics. This research implements the core concept of Bayes’ theorem. This theorem allows us to use a priori beliefs of probability to combine with evidence that it can be found (update every economic situation in CLMVT countries) then this method will have a new prediction of the posterior probability distribution. The posterior probability distribution will be received from the simulation algorithm once again. It would be calculated from the scope of every scenario that can be happening based on our belief in the future. The Bayesian correlation testing still confirms that the FDI inflow from China per GDP of CLMVT countries has the most play important role to drive the macroeconomic of these five countries’ economy.