A Study On The Institutional Factors Of The Location Choice Of Taiwan’s Foreign Direct Investment

With the fluctuation of the global economy,the increasing uncertainty of the world economy,and the intertwining of geopolitical and social forces,new changes have also taken place in the location selection of Taiwan’s foreign direct investment.In the past,research on the location of Taiwan’s foreign direct investment often focused on the influence of traditional economic factors.However,traditional economic factors do not seem to fully explain the new changes in the location of Taiwan’s foreign direct investment,especially the "New Southbound Policy" promoted by the Taiwan authorities,which attempts to use the labor cost advantage of Southeast Asian countries to guide Taiwanese investment,has not achieved much effect.the "new southward policy" promoted by the Taiwan authorities.With the deepening of the international division of labor,the cost factor has long ceased to be the only factor for Taiwanese businessmen to consider when choosing a location for foreign investment.The improvement of investment rules and institutional environment has become an important criterion for Taiwanese businessman to choose an investment location.This paper will adopt the perspective of institutional economics and introduce institutional variables to try to explain the new changes in the location selection of Taiwan’s OFDI,At the same time,it takes Taiwanese foreign direct investment and foreign sub-industry investment as the research object to analyze the influence of institutional factors on the location selection of Taiwan’s foreign direct investment.Finally,it takes Taiwanese businessmen’s investment in mainland China as a research sample,and takes the environmental protection system that has greatly affected the operation of mainland Taiwanese businessmen in recent years as an entry point to study the impact of the mainland’s environmental protection system on Taiwanese businessmen’s investment in mainland China,which provides certain policy reference and reference for the development and implementation of Taiwan-related work in mainland China.The main research conclusions are as follows:(1)The change of the global institutional environment is an important factor affecting the location selection of Taiwan’s foreign direct investment.This part uses the Heckman two-stage gravitational model to distinguish location selection and investment scale,and effectively overcomes the biased estimation problem caused by sample selection in traditional literature,which systematically examines the location selection and investment scale of Taiwan’s foreign direct investment from multiple levels such as institutional environment,market,and natural endowments.Through empirical testing,it is found that in the process of Taiwan’s foreign investment,it will choose countries and regions with high government efficiency and high economic freedom for investment,but it shows the characteristics of chasing inferior to the local legal system environment and environmental protection system environment.In the subregional sample regression of mainland China and the "new southbound" countries,we found that:Taiwan prefers to invest in countries and regions with high government efficiency and high economic freedom,while at the same time showing the characteristics of inferior legal system and environmental protection system.(2)Through empirical analysis of the impact of the institutional environment on Taiwan’s OFDI in different industries,the study shows that the impact of the institutional environment on Taiwan’s OFDI is heterogeneous in industry:Compared with high-tech industries and service industries,traditional industries are dominated by manufacturing with high energy consumption and high pollution,which are greatly affected by the strict environmental protection system of the economy.Therefore,the environmental protection system has a significant negative impact on traditional industries;Because of the synchronization of consumption,the service industry requires faster connection in terms of service time,and higher quality and efficiency in terms of government service quality.Therefore,government efficiency has a significant positive effect on Taiwan’s foreign service industry investment;As the fastest-changing industry,high-tech industries have higher requirements for marketization,and higher requirements for the maturity of factor markets and product markets,so they are more significantly affected by the economic freedom of the economy;The three industries are all biased towards economies with a poor legal system environment,and there is a possibility of taking advantage of the legal system defects of the recipient land to seek "convenience".(3)In the context of economic transformation in mainland China,with the legal policies at the central level,as well as the legal system construction and social culture at the local level have undergone earth-shaking changes,the strategic models and business methods of local and Taiwanese businessmen are also constantly improving and progressing.This part uses a two-stage game model for theoretical derivation.On this basis,using the provincial panel data of mainland China from 2006 to 2016,the theoretical proposition is empirically tested by the systematic GMM estimation method and found:The environmental regulation policies adopted by mainland local governments have a significant inhibitory effect on the investment of Taiwan-funded enterprises,and the interaction between environmental regulation and local tax burden levels also has a negative effect on Taiwanese investment.In order to maximize the interests of the jurisdiction,local governments have the motivation to reduce environmental regulations to attract investment.The quantile estimation further confirms that the effect of environmental regulation is heterogeneous at the regional level,and this effect is most significant in areas with high levels of Taiwanese investment.The main contributions of this paper are:First,this paper finds that the host institution environment is an important influencing factor of Taiwan’s foreign direct investment,which expands the research on Taiwan’s foreign investment.Second,it selects proxy variables that describe the institutional environment and different industries of Taiwan’s OFDI from multiple perspectives to conduct empirical research,and draws more robust estimation results and more specific and comprehensive conclusions.Third,this paper compares mainland China with the "new southbound"countries,and for the first time takes regional environmental regulation as an example to study the impact of changes in the institutional environment in mainland China on mainland Taiwanese investment from the perspective of new changes in mainland China.By studying the impact of institutional environment changes on Taiwan’s foreign direct investment,we provide a new perspective on the interpretation of the new changes in Taiwan’s foreign investment location selection in recent years,which has a certain reference value for the specific implementation of mainland China’s work on Taiwan.