Analysis On The Location Choice Of China's Foreign Direct Investment From The Institutional Perspective

Since China formally proposed the "going out" strategy at 2002,China's foreign direct investment has begun to develop rapidly,and has its uniqueness,for example,China's FDI covers a wide range,but is highly concentrated at the same time;China's FDI in countries which have poor domestic institution systems,such as Nigeria,Angola and Pakistan,has increased with high rate of growth;bilateral diplomatic conflicts seem have no obvious negative effects on China's OFDI.These phenomena can not be explained well from the economic-based perspective.Under this background,this article is concentrated to analyse the impact of institutional factors on China's FDI location choice from the institutional view.To enrich the research on FDI from the institutional perspective,the main contents are as follows:analyse the direct impacts of three institutional factors,namely domestic institutional quality of host countries,bilateral political relations and bilateral institutional arrangements;and the interaction effects between the three types of institutional factors.According to the information I have acquired,I find that most of the studies on the impact of institutional factors on foreign direct investment mainly analyze the role of host country institutional quality,and analyses of the influences of bilateral relations and bilateral institutional arrangements are less,not to mention the interactions between different institutional factors.So this paper can be in a certain extent to supplement and enrich the neglected the aspects of research in this field.This paper uses a panel data on flows of China's OFDI into117 countries or regions from 2003 to 2014 to examine direct and interaction effects of three institutional factors in regressions using fixed effect model.The direct effect results show that:first,the institutional quality of host country and the Chinese OFDI flow has negative relationship,that is,the better host country's institutional quality is,the less China's direct investment flow to it.China's OFDI presents a paradox of risk preference which is contrary to traditional view.Second,bilateral interstate relations have a significant impact on China's OFDI.Specifically,political conflicts between China and host countries play a negative role in China's bilateral OFDI,while China and the host country's high-level diplomatic visits play a positive role.Third,the international investment agreement can significantly promote China's foreign direct investment flows into the host country.It should be noted that the promotion effect of bilateral investment agreements(BIT)is not as good as IIA's which contains various types of international investment agreements.The interactive effect results show that:IIA and host countries' domestic institution quality have a negative coefficient,which means IIA may function as substitutes for good domestic institutional quality.The results also show that IIA and the diplomatic visits are complementary.This paper argues that it is because the protective mechanism of both on China's foreign direct investment is alternative,the existence of one will reduce the effect of the another,so the interaction term between IIA and foreign visits is negative.Finally,the interaction of IIA and the bilateral conflict has a positive relationship.This means that the increase in bilateral conflict will strengthen the role of international investment agreements,and on the other hand,the implementation of international investment agreements can help moderate the adverse impacts of conflicts.Sensitivity analysis is made then.The results are similar to the previous ones,meaning the above results are robust to changes in sample size and variables.Finally,on the basis of the above results combined with practical reality that Chinese governments intervene a lot in OFDI,a few suggestions are put forward,hoping to help China' OFDI get more advancements in the future.Firstly,the government should sign different varieties of IIA with host countries;Secondly,the government of China should promote the signments of IIA with countries which have poor domestic institutions;Thirdly,the government should better increase the number of IIA with host countries which have unfriendly relations with China.