The Impact Of Formal Institution On China’s OFDI In The Countries Along "The Belt And Road"

With the development of economic globalization and regional economic integration,the global financial crisis took place frequently and the new type trade protectionism of countries has been on risen.The economic cooperation of countries has become increasingly closer,but the competition between them is also becoming fiercer.China as the world’s second largest economy,"go global" strategy has made a breakthrough.In 2015,the scale of China’s foreign direct investment has exceeded the scale of attracting foreign investment for the first time,China goes into the capital net output stage.At the same time,China is also facing a series of practical problems affecting economic development,such as the slowdown in economic growth,the overcapacity of state-owned enterprises in many industries,how to manage the huge foreign exchange reserves,high dependence on foreign resources and so on.Therefore,China timely put forward the construction of "the Belt and Road" strategy in 2013,not only to alleviate such domestic problems,but also provides a good opportunity for Chinese enterprises to implement "go global”strategy.China has attached great importance to "the Belt and Road" strategy.However,the OFDI of Chinese enterprises in the countries along "the Belt and Road" still exists many problems.On the one hand,the scale of OFDI is small,and the investment has obviously unbalanced characteristics,namely,the main bodies of investment,investment industries and investment locations are over-concentrated.On the other hand,the investment of Chinese enterprises also has obvious institutional tendencies and faced high economic and political risks.This thesis is divided into five parts,we use the methods of literature research,qualitative and quantitative analysis,normative and empirical analysis,comparative analysis to study.The first part is the introduction,generally introduces the background of this article,the significance of research,the structure of the arrangement,etc.,meanwhile this part reviews and makes a comment on the existing literature.The second part is the theoretical basis of this thesis.Such as the classical theories of foreign direct investment,the theories of foreign direct investment of developing countries,the spatial correlation of direct investment,and the mechanism of institutional factors affecting foreign direct investment.The third part analyzes the situation of China’s foreign direct investment in the countries along "the Belt and Road",including the scale,structure and effectiveness of investment.We also points out the problems of investment and find that the formal institutional factors influence the OFDI greatly.And this part analyzes the situations of formal institutions in China and other countries along "the Belt and Road".Therefore,the fourth part is the empirical research of how the formal institutional factors affect China’s OFDI in the countries along "the Belt and Road".It has been pointed out that foreign direct investment could be affected by the "third countries" which are geographically near the host country or have the similar economic scale,and institutional tendencies of direct investment depend on the relative institutional factors of each host country.So this thesis uses the Spatial Econometric Model to make empirical regressions for reducing the error of model setting and accurately judges the institutional tendencies of Chinese enterprises.Firstly,we constructs the spatial weight matrix of economic and geographical distance to carry out Moran index test to study whether spatial correlations of direct investment and other location factors exist.Secondly,this thesis also divides the formal institutional factors into institutional quality and institutional distance to analyze.Lastly,as for the selection of model,through the LM test,LR test and Wald test,this thesis finally selects the Spatial Panel Durbin model to do regression and analyzed the results.The fifth part is the conclusion and the countermeasures.The main conclusions are as follows.Firstly,the empirical results indicates that China’s investment in countries along "the Belt and Road" and the political institution of host country all have obvious spatial correlation.Secondly,China is inclined to invest in countries with poor political institution and low governance level.The reasons are as follows:China’s own institution is more regulated,Chinese state-owned enterprises have strong anti-risk ability and "Ownership Specific Advantages",etc.Thirdly,the economic institution factor does not significantly affect the Chinese enterprises to invest in the countries along "the Belt and Road",but the economic institution and the level of infrastructure construction of host countries all have good spillover effects,that is,countries devote themselves to improving their own economic environment freedom or signing regional investment and trade agreements or constructing the "interconnection" of infrastructure may have a positive impact on the absorption of China’s direct investment by other countries along "the Belt and Road".Fourthly,the model based on the institutional distance find that China is inclined to invest in countries with relatively small gap between China’s political and economic institutions,namely,countries in ASEAN and Central Asia,West Asia.And China’s investment is less in Central and Eastern Europe countries which have better formal institutions and the institutional distance between China is bigger.Fifthly,in any case,there is a significant spatial correlation between China’s direct investment in the countries along the "One Belt and One Road",and this correlation is negative,that is,there exist the effect of competing with each other in absorption of China’s investment.This thesis presents three mechanisms to explain this phenomenon.First of all,according to the spatial correlation theory of direct investment,the existence of complex FDI leads to the influence of "third country" effect on direct investment,which reflects the complexity of China’s investment motives.Secondly,the absorption of China’s FDI exists game phenomenon which led to "beggar-thy-neighbor" situation.Finally,the over-concentration of investment in the countries along "the Belt and Road" is also the main reason for this result.Sixthly,in terms of other location factors,China does not have obvious "resource seeking" motives and China has market-oriented and export-oriented characteristics of investment in countries along "the Belt and Road".On the basis of above analysis,this thesis puts forward the suggestions from the angle of government and enterprises.On the one hand,the decision-makers should pay attention to the "third country" effect and establish the multilateral coordination mechanism;promote the equalization and the sustainable development of foreign direct investment;relatively optimize the investment environment,offer institutional information services,reduce the economic and political institution risks of investment;promote export cooperation with the countries and promote the growth of the national investment scale.On the other hand,enterprises should also focus on preventing and controlling the risk of investment;improving the mode of operation;reducing blind investment and the adverse effects of institutional factors to improve the quality of "go global" strategy.These are also the practical significance of this thesis.This thesis has a certain theoretical significance which makes a effective complement to the mechanism that the "third country" effect and institutional factors how to impact direct investment.As for the innovations,on the one hand,this thesis is based on the traditional model,but uses Spatial Econometric Models to estimate the institutional factors influence foreign direct investment.It not only examines whether the "third country" effect affects China’s OFDI in countries along "the Belt and Road",but also analyzes whether the institutional factors and other location factors have spatial correlation and thereby affect neighboring countries absorbing China’s OFDI.On the other hand,this thesis makes a comprehensive study on the reasons why China’s OFDI appear special institutional preference and are affected by the "third country" effect.However,the shortcomings of this thesis are as follows:We do not use the direct and indirect effects framework of space econometric model to do the quantitative analysis.We have not successfully classified the sample into different economic types to do regression.In fact,the institutional factors of different countries have significant differences.These are also the difficulties and hot spots for the future studies.