Influence Of Institutional Factors On China’s OFDI Of Three Motivations

Along with the fast growth of China’s outward foreign direct investment (hereinafter referred to as OFDI) and continually rising ranking, it’s becoming more and more important to understand the determinants of China OFDI’s location. Institution, as a critical factor, must be deeply studied. However, the impact’s mechanism is different for OFDI with different motivations. Institutional environment and institutional distance also have different influences. Therefore, this paper examined the influences of institutional factors on China’s OFDI of three motivations through theoretical and empirical analysis and it has theoretical and practical significance.This paper summarized the literatures from China and overseas and found existing researches agreed on that China’s OFDI has three main motivations:resource seeking, skill seeking and market seeking. They also have a unanimous conclusion on the general relation between host country’s institution quality and net OFDI flow. However, if we set China as the home country, there would be many different results. Besides, researches that study the determinants of China’s OFDI with different motivations are limited and variable selection in existing researches is kind of rigorous. Therefore, on the basis of Buckley’s (2007) model, this paper developed a general model which suits today’s China and the patterns of this paper’s data better. This paper further introduced interactive variables to analyze the different influences from different motivations. Then, based on North (1990), Scott (1995) and referred to Zhen Pan’s (2008) researches, this paper developed a new ranking system to measure the institutional environment and institutional distance of the host countries. After that, this paper used general general least square (GLS) method to regress the general and interactive model, and found that:generally, China’s OFDI prefers host countries with good institutional environment and small institutional distance and culture distance has the biggest impact followed by legal policy distance and economic policy distance; institutional distance has bigger impact on OFDI’s location than institutional environment; the impacts of institutional factors on skill seeking OFDI, market seeking OFDI and cheap labor seeking OFDI are significant. Natural resource seeking OFDI is merely influenced by institutional factors; different results in existing researches mainly come from the complexity of China’s OFDI and institutional factors’ different impacts on OFDI with different motivations. At last, this paper summarized conclusions and gived policy recommendations.