The Impact Of Psychic Distance On Chinese OFDI Location Choice

With the development of China’s economy and the implementation of the "Going out strategy", China’s OFDI has entered into the phase of rapid development. While the investment is dramatic growth, the location choice of China’s OFDI presented a serious imbalance. How to make reasonable location choice become the research focus. Foreign scholars have widely used Psychic Distance (PD) in the field of OFDI, but the concept does not get enough attention of domestic scholars.From the perspective of PD, the paper combines the methods of theoretical research and empirical analysis, and uses China’s OFDI panel data from 2005 to 2013 in 74 countries. We study the relationship between OFDI location choice and PD in China, and then add trade in the model to analysis the moderate effect on the relationship between PD and OFDI location choice. This paper provides a broader guidance to China’s companies, and the mainly results include the following points:(1) Referencing existing research and China’s particularly, we divided PD into six dimensions:industrialization level, political governance and institution, religion, education level, cultural distance and geographic distance. Then, we build a comprehensive index and measure the PD between China and the world’s major countries to provide the reference for companies.(2) We use gravity model and adopt generalized estimating equations on empirical research. The result shows that PD significantly affects China’s OFDI location choice and has negative effect to OFDI. In addition, the relationship between differences on industrialization level and OFDI location choice is not significant, other dimensions of PD all have negative impact to OFDI.(3) The results also show that trade has a significantly positive effect on the relationship between PD and OFDI, it reduce PD’s negative impact on OFDI location choice. Besides, export has a stronger moderate effect than import;(4) Combining the perspective of PD, we provide some suggestions from the government level and company level, in order to guiding the OFDI location choice of China’s companies.