Institution Distance And China's Outward Foreign Direct Investment

In recent years,China's outward foreign direct investment had made remarkable achievements.After the 2008's financial crisis,along with Chinese economy entering "The New Normal" pattern and the adjustment of Chinese economic structure,foreign direct investment in China has stepped into a new stage.Together with state-owned enterprises,more and more private ones have been outward to pursue the optimal allocation of their assets in the world.And the purpose of Chinese outward foreign direct investment has not only been limited to seek resources,but also has expanded global businesses,to enhance the status in global value chain division.However,China's foreign direct investment is faced with many difficulties and problems,and is still in the status of "immature foreign investment".The overseas investment from China has been caught in the dual system,where the existence of institutional distance increases "liability of foreignness" for overseas investment enterprises.Therefore,it is an essential issue on how to overcome the "liability of foreignness".In addition,under certain circumstances,will the institutional distance can turn into "institutional advantage" ?Since the beginning of 1980 s,China has signed many bilateral investment treaties.After 2003,China pay more attention to providing protection for Chinese investment companies abroad.Thus,how will the influence of the bilateral investment agreements be?And what is the mechanism behind the bilateral investment agreements? Which countries in agreements with China are more effective to promote China' overseas investment?Using the panel data covering 54 countries or regions during 2003-2012,based on the perspective of institutional distance,this paper investigates the impact of Chinese bilateral investment agreements on China's OFDI.In order to measure the impact of institutional distance and bilateral investment agreements on OFDI,we employs entropy evaluation method to build a comprehensive institutional indicator including political and economic institutions.Empirical results show that the institutional distance suppresses China's OFDI.In developed countries,there exists "system escape",which is not significant.To be specific,when China invests to developed countries,the institutional differences between home and host counties may become the advantages.And when China enters the developing counties,there is a significant "institutional proximity",namely the smaller gap between the institution difference within home and host counties is,the more conducive to China's OFDI is.Secondly,resources and technology are strong attractions to China's OFDI,which oblige Chinese companies to overcome "liability of foreignness" brought by institutional distance.China's outward foreign direct investment are motivated by seeking resources and technology.There is a significant "political system closer" and "economic system escape " for China's OFDI.Thirdly,bilateral investment agreements,not only reduce barriers for Chinese enterprises to go abroad,but also have significant reverse regulations to the suppression of institution distance.Besides,BIT's effects to OFDI varies from country to country.The direct effects of BIT signed with developed countries is not significant,whereas the indirect effects are significant.BIT's direct effects and indirect effects signed with developing countries are both significant.Compared to the adjustment of the political institutional distance from the bilateral investment agreements,BIT is more effective in reducing the investment risks and the costs due to the difference of economic system between home and host countries.Finally,this paper tests the optimal institutional interval for China to sign BIT through threshold regression model.