Foreign Direct Investment along the Belt and Road:

A Political Economy Perspective

Jiatao Li, Ari Van Assche, Lee Li, and Gongming Qian

Journal of International Business Studies (2022) 53, 902–919

Assignment 5

Tesfamaryam A.

May, 21/05/2024
 Introduction

The Belt and Road Initiative (BRI) is a global development strategy launched by
China in 2013.

It is often referred to as the most important international development program of

the 21st century.

The BRI aims to achieve multiple goals, including enhancing regional connectivity,
promoting trade and investment, and fostering economic cooperation.

It seeks to strengthen infrastructure links, facilitate policy coordination, promote

financial integration, and enhance people-to-people exchanges.
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• The BRI encompasses a vast network of infrastructure projects, including roads,

railways, ports, airports, and digital connectivity.

• It spans infrastructure projects across at least 71 countries, intended to link

Eurasian markets by rail and sea as ‘‘China’s Marshall Plan’’ (Casas-Klett & Li,
2021; Shen & Chan, 2018)

• The scale of investment is substantial, with predictions of the total investment

exceeding USD 1 trillion by 2027 (Li, Liu & Qian, Li, Liu, et al., 2019; Macaes,
2018).
Importance of the study

• The BRI holds great significance in linking Eurasian markets, which encompass a
vast geographic region spanning Asia and Europe.

• By improving physical infrastructure, such as roads, railways, and ports, the BRI
aims to enhance trade flows, reduce transportation costs, and promote economic
integration among participating countries.

• It envisions the creation of a seamless network of transportation, trade, and

communication, fostering closer economic ties and regional development
…

The BRI involves an extensive portfolio of infrastructure projects, covering

various sectors such as transportation, energy, telecommunications, and more.

These projects include the construction and upgrading of highways, railways,

ports, airports, pipelines, power plants, and digital connectivity.

The scale of these projects is massive, with a focus on both physical connectivity
(land and maritime routes) and digital connectivity (technology and
telecommunications).

They aim to address infrastructure gaps, improve connectivity, and stimulate

economic growth in participating countries
 Statement of the problem

• Many BRI countries – particularly the small, landlocked, and fragile – face
significant infrastructural deficits that have left them poorly integrated in regional
and world markets

• The state-led nature of the BRI and its geopolitical implications have influenced
the participation of governments and firms in host and third countries in Chinese-
funded BRI projects.

• The selection of host-country firms and third-country multinational enterprises

(MNEs) in BRI projects is influenced by the institutional and geopolitical context
surrounding the BRI.
Theoretical Streams

• A defining feature of BRI is the heavy influence of the Chinese government on

multiple levels of BRI projects (Buckley et al., 2018; Ramamurti & Hillemann, 2018).

• use VOC to identify the type of host countries in which Chinese SOEs face particularly
large legitimacy gaps and where therefore local and third-country firms are more likely
to be selected to participate in a BRI project (VOC) (Jackson & Deeg, 2008)

• We use it to analyze how geopolitical concerns influence both the legitimacy gap of
Chinese SOEs in BRI host countries and the host country’s relative bargaining power
in the one-tier bargaining game (Witt, 2019a, 2019b).
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• Varieties of Capitalism (VOC): This theoretical stream analyzes how different

institutional systems enable or constrain the performance of certain types of firms.

• Geopolitics: Geopolitics explores how rivalries between nations influence their

attitudes, goals, and foreign policy decisions.

• Game theory: analyzing and predicting the behavior of rational actors in

competitive or cooperative settings.
Empirical literatures

• Infrastructure Deficits: Many countries involved in the Belt and Road Initiative (BRI),
especially small, landlocked, and fragile nations, have significant infrastructural deficits.
These deficits have resulted in poor integration with regional and global markets. (Ruta et
al., 2019).

• Opportunity for Infrastructure Development: BRI projects offer these countries an

opportunity to address their infrastructural gaps. The projects provide a means to improve
their trade, foreign direct investment (FDI), and overall welfare.

• Cost Advantage: The infrastructure development offered through BRI projects comes at a
lower cost compared to other alternatives available to these countries. This cost advantage
makes BRI an attractive option for addressing their infrastructural needs. (Eurasia group,
2020).
….cntd

• China’s commercial motives for embarking on BRI include the

internationalization of China’s currency, the effective use of its foreign currency
reserves, the reduction of Chinese excess production capacity, and the
development of China’s Western areas.

• The non-commercial aims include exporting its development model, diffusing its
political influence, bolstering regional stability, and improving China’s energy
security.
Conceptual frame work
propositions

• Proposition 1: In BRI host countries where the institutional complementarity with

China is lower, the legitimacy gap of Chinese SOEs is higher, increasing the
likelihood that a local firm or third-country MNE gets selected to participate in a
BRI project.

• Proposition 2: In BRI host countries that are geopolitically less aligned with
China, the legitimacy gap of Chinese SOEs is larger, thus increasing the
likelihood that a local firm or third-country MNE gets selected to participate in a
BRI project.
..cnt’d

• Proposition 3: In BRI projects that are of geopolitical priority for China, the host
country has a higher relative bargaining power, increasing the likelihood that a
local firm or third-country MNE gets selected to participate in the project.

• Proposition 4: In BRI projects that are of geopolitical priority for third countries,
the host country has a higher relative bargaining power, increasing the likelihood
that a local firm or a third-country MNE gets selected to participate in a BRI
project.
…cntd

• Proposition 5: Geopolitical jockeying by local firms and third-country MNEs

positively moderates the effects of the Chinese SOEs’ legitimacy gap and the host
country’s relative bargaining power on the likelihood that a local firm or a third-
country MNE gets selected to participate in a BRI project.
Methodology

• Qualitative analysis of case study

• theoretical analysis and conceptual framework based on existing literature.

• analyze relevant academic literature, theoretical frameworks, and empirical

studies to support their arguments and develop their conceptual model.
 The key findings of the study

• The selection of firms in BRI projects can be seen as the outcome of a one-tier

bargaining game between China and the host country.

• VOC helps identify host countries where Chinese SOEs face legitimacy gaps, making it

more likely for local and third-country firms to participate.

• Geopolitics explores how geopolitical concerns influence the legitimacy gap of Chinese

SOEs and the host country's bargaining power.

….cntd

• Host-country governments and third-country firms can play an active role in BRI

projects by contributing and participating in decision-making. However, Chinese

companies still dominate the majority of projects, and host-country firms and

third-country MNEs face challenges in finding effective strategies to participate.

• Geopolitical jockeying strategies can be employed by firms to influence the

outcome of the bargaining game and increase their chances of being selected in

BRI projects.
FDI along the Belt and Road Initiative (BRI) relation with non-marketing strategies.

• Non-Marketing Strategies: These strategies often involve policy frameworks,

incentives, regulations, and support mechanisms that aim to create an attractive
investment environment.

• BRI and FDI: The BRI is a development strategy initiated by China that aims to
enhance connectivity and cooperation between China and countries along the
proposed land and maritime routes.

• Investment Promotion: BRI countries can utilize non-marketing strategies to

establish investment-friendly policies, provide incentives such as tax breaks and
subsidies, streamline administrative procedures, and offer support services to
facilitate investment.
Future research Implication

Further research can delve deeper into understanding the specific institutional and
geopolitical factors that influence the selection of firms in BRI projects.

Future research could also explore the perspectives of various stakeholders

involved in BRI projects, such as governments, local communities, and non-
governmental organizations.
Thank you