An Empirical Study Of Cultural Difference’s Impact On Foreign Direct Investment In China

With the accelerated development of economic globalization and regional economic integration, capital flows more frequently throughout the world, foreign direct investment (FDI) has increasing influence on the global economy and trade. In recent years, not only "bringing in" but also "going out" has been encouraged in China and Chian’s businesses have become more and more competitive internationally. In addtion, China has become multinational companies’preferred investment destination owing to the rapid development of economy and the improvement of investment environment.Multinational corporations are the main body and media of FDI and has been playing a more and more important role in the world economy. Many foreign and domestic scholars has conducted theoretical and empirical analysis to find out what are the location factors and selection factors of multinational corporations’investment. However, the impact of cultural differences is rarely discussed, and the research on cultural difference’s impact on foreign direct investment in China is blank. Actually, cultural difference’s impact on foreign direct investment is objective and its influence is growing. The influencial mechanism of cultural difference’s impact on foreign investment was studies in this paper based on related theories, and then analysed the cultural difference’s impact on foreign investment in China, in order to give effective suggestions for attracting foreign investment and conducting outward foreign direct investment. The relationship between culture and FDI in China in the past twenty-five years was analyzed systematically based on the data of FDI form forty-seven countries.This paper included six chapters. Chapter one introduced the research background and significance, research method, framework and so on. Chapter two was about the definetion of the related concepts and literature review. Chapter three to chapter five is key parts. Chapter three stated Chinese culture and the cultural differences between the investment countries or areas and China. Then, how cultural difference would affect FDI was discussed from both micro and macro aspects. In other words, it was to find the theoretic basis. Chapter four firstly reviewed the development course of FDI in the world as well as in China and analyzed cultural difference’s impact on FDI from the historical perspective. After that, the status of FDI in China was presented and it meant analyzing the cultural difference’s impact on FDI from the realistic perspective. Chapter five was about the empirical analysis. The author uses the culture distance and psychological distance to measure cultural differences. The culture distance between China and other countries was recounted by the classic five dimensions method propesed by Hofstede, the Dutch culture master. The ethnic population proportion in investment countries was used to measure the psychological distance. The regression analysis on FDI from forty-seven countires in the past twenty-five years (from1985to2009) was conducted on the basis of the gravity model, the classical model applicated in trade and investment. The research was to find each location factor’s impact on FDI in China and separate the cultural factor’s effects on FDI.Policy suggestions were put forward in chapter six on the basis of the above theoretic and empirical analysis.The results showed that cultural difference had significant effects on FDI in China. Specifically speaking, the cultural distance was positive correlated with FDI in China and the psychological distance was negative correlated with FDI in China. At the same time, there were some different results compared with the previous research:China’s GDP was negative correlated with FDI in China; wage growth was not a barrier to FDI in China as other scholars pointed out, but FDI and wage grew together in China; policy variables did not affect FDI in China signicantly due to their hysteresis and consistency, as well as other external causes, such as the world economic fluctuation and so on.