The Uncertainty of Home Country’s Monetary Policy and Chinese Outward Foreign Direct Investment

Abstract

Home-country monetary policy uncertainty affects outward foreign direct investment (OFDI). Taking A-share nonfinancial listed companies in China from 2004 to 2014 as the sample, this article explores the influence of home-country monetary policy uncertainty on OFDI. The results show that home-country monetary policy uncertainty negatively impacts Chinese OFDI. This adverse effect is more pronounced for firms facing greater financing constraints. However, the negative effect of monetary policy uncertainty on OFDI is mitigated by government subsidies and bank-enterprise ties and is more pronounced for small firms than for large firms. This article offers important theoretical and practical insights into the effects of China’s monetary policy uncertainty on OFDI. JEL Classification E52, F21, F68