Corruption Distance And China’s Outward Foreign Direct Investment: An Empirical Analysis On The Cross-country Panel Data

Since the twenty-first Century, China’s outward foreign direct investment(OFDI)has made strong growth, and China has become one of the most important sourceplace of investment in the international capital market. A new force suddenly rises ofChina’s OFDI is somewhat different from other countries’ own particularity, and lotsof literature strive for the explanation of the behavior of Chinese enterprise’s OFDIfrom different angles, such as corruption, which has aroused more and more concernfrom scholars. In particular, how the corruption environment in both home countryand host country affect the China’s OFDI is needed to make an academic discussion,which will be attained great theoretical and practical significance. Based on the theoryof Institutional Theory and Behavioral Science, the paper introduced “corruptiondistance” as the characterization of difference in the corruption level between homecountry and host country, attempt to study the actual mechanism as the corruptionenvironment in home country and host country to influence China’s OFDI throughdifferent risk preferences of investors, so as to explore the difference on transitionalinvestment behavior between China and the ordinary countries especially developedcountries, which will provide more theoretical and empirical support for the policy ofChina’s OFDI in the future.Based on the related literature from the scholars at home and abroad, the studyhas grasped the fact that corruption distance and Chinese OFDI exists the positiverelationship, an summarized the unique characterization of Chinese OFDI whichdiffers from developed countries’ by the comparative analysis between Chinese OFDIand developed countries’. In order to obtain more reasonable theoretical explanation,we attempts to integrate the system concept and behavior of the two theoreticalperspectives, assumes that the institutional environment of a country’s correspondinggives investors a two skills, one is the marketing skill, other is the non-market skill, and builds a mathematical model by the abstraction method, then thoroughlydiscusses the investment benefit changes of the multinational enterprises due to thedifferences of their own competitive advantages within the different investmentenvironment both home country and host country, so as to straighten out the effectmechanism of the corruption distance on outward foreign direct investment.Theoretical study shows that the corruption distance will affect the investor’sperceptions of risk and the opportunity to influence foreign direct investment’sbehavior. We further combines with the practice of Chinese OFDI, and infers that withthe institutional support from home country, Chinese enterprises are able to withstandthe relatively high risk entering the host countries which have large corruptiondistance from China to carry out outward foreign direct investment, so as to fullyintegrate the resources of two kinds both home and abroad, and attain the relativeinvestment opportunities. Then, we draws two hypothesis, one is that China’s OFDItends to enter countries or regions with larger corruption distance, another is that boththe natural resource-seeking OFDI and the strategic asset-seeking OFDI of China tendto enter countries or regions with larger corruption distance. In order to verify thetheoretical hypothesis above, we accord to the revealed preference theory and use thepanel data of Chinese OFDI to168countries over the year2003to2011and themethod of Heckman two-stage model to do an empirical research on the influence ofcorruption distance between China and host countries on Chinese OFDI, so as toreversely capture the risk preference of Chinese enterprises. The results show thatcorruption distance does not significantly affect Chinese OFDI whether to enter thehost country, but has significantly positive influence on the scale of Chinese OFDI;what’s more, after distinguishing the direction of corruption distance, the conclusionremains valid. After distinguishing the different motives of OFDI, we find thatcorruption distance has significantly positive influence on the resource seeking OFDIand strategic asset seeking OFDI. To further differentiate geographic distribution andtime differences of host countries, we find that Chinese enterprises tends to entercountries in other areas with more stock of OFDI than Europe with larger corruptiondistance; especially after the global financial crisis happened in2008, the Chineseenterprises have more stock of OFDI in countries with larger corruption distance.The conclusion shows that, compared with developed countries, institutionalenvironment especially the institutional environment of the home country will have animportant impact on the behavior characteristics and investment decision-making habits of Chinese enterprises, which makes Chinese enterprises form a strong riskappetite, and bear certain risks entering the host country which the level of corruptionis larger different from the home country, so as to obtain the relatively investmentopportunities. Nevertheless, the limited rational investors may have cognitive biaseswith the perceived risk and opportunity recognition, being easy to overestimate thechance and underestimate risk. What’s more, it is bad for the continuity of Chineseoutward foreign direct investment under the changing international environment.Thus,in the process of “going out”, both the government and enterprises should strengthenthe awareness of risk, make timely evaluation and countermeasure for the potentialrisks in the outward foreign direct investment, promote the sustainable and stabledevelopment of Chinese OFDI.