The Impacts Of Host Countries’ Institutional Factors On Fdi:Evidence From China’s Ofdi To The “Silk Road Economic Belt”

The 21 st century has witnessed the ever growing importance of foreign direct investment(FDI) in promoting global economy as well as the rapid development of FDI from developing countries. It is therefore of great significance to study the mechanism of the regional trend of FDI from developing countries, in terms of both enriching FDI theories and providing policy implications for the relevant countries’. For this purpose, this paper studies the impacts of institutional factors of host countries on FDI by taking China’s OFDI to the “Silk Road Economic Belt” as evidence.Theoretical studies show that host countries’ institutional factors(including political, legal and economic ones) have different impacts on OFDI. Considering from that fact, we first document the relevant points of views by scholars at home and abroad and then define the term of institution for this study. Then the main features of China’s OFDI to the “Silk Road Economic Belt” are exhibited in detail. Based on the above documentation, we put forward our hypotheses regarding the relationships between institutional factors and OFDI and select the model variables accordingly. The research is carried out by adapting a gravity model to addressing institutional factors to investigate the effects of such factors on OFDI, by using data on the volume and structure of China’s OFDI to the “Silk Road Economic Belt” as well as the political, legal, and economic indicators from 2003 to 2014. In doing so, we undertake unit root and cointegration tests on each economic indicator at first. Then we make an empirical analysis by panel data modeling and giving the estimated results. The empirical results show that China’s firms tend to invest in countries with higher political risk, legal level and economic freedom. It is most likely that host countries’ lower level of political system reduces the protection of resources and markets, leading to a lower entry threshold and therefore, a larger volume of vested interests through rent-seeking for the Chinese firms. On the contrary, countries with a higher level of legal and economic systems tend to have more liberal business environment, more standardized legal system, and more equitable competitive environment that in favor of Chinese enterprises’ investment. At the end of the paper, conclusions are drawn and corresponding policy implications are given from macro and micro levels respectively.The findings of this paper have rich theoretical and policy implications. They justify Dunning’s eclectic theory of international production, the theory of complementary between trade and FDI as well as Markusen’s knowledge-capital model. They provide a theoretical basis for the locational policies and measures of FDI in developing countries. In addition, they provide a theoretical reference for enterprises in making and implementing FDI strategies. Most of all, they provide a specific reference to promote FDI smoothly in the “Silk Road Economic Belt”.