A Study On The Impact Of Institutional Vulnerability On Chinese Enterprises' Outward Direct Foreign Investment

The Ministry of Commerce of China showed that China's net foreign direct investment was US$196.15 billion in 2016,ranking the second in the world in terms of flow volume,an increase of 34.7%year-on-year.By the end of 2016,China's 24,400 domestic investors had set up 37,200 foreign direct investment enterprises overseas,distributed in 190 countries(regions)around the world.At the same time,more and more scholars pay more attention to the outward foreign direct investment of Chinese enterprises.The traditional theory of foreign direct investment mainly study from the perspective of comparative advantages of enterprises.Nowadays,more and more research turned to the relationship between the institutional factors and foreign direct investment.China,as a transitional economy,is actively carrying out market reforms with Chinese characteristics,so its domestic institutional environment has crucial impact on the international decision-making of the enterprises.This paper develops the concept of institutional vulnerability to study the outward foreign direct investment of Chinese enterprises.The author firstly analyzed the theoretical mechanism-the impact of institutional vulnerability on FDI,then put forward five hypotheses according to the theoretical mechanism,and establishes several variable measurement model to measure the institutional vulnerability,moderator variables and other control variables.Next,the author merged the data of industrial enterprises database and OFDI from 2003-2009,and constructed the regression model of binary Probit model to study the impact of inter-provincial institutional vulnerability on OFDI,Also,the author added interactive items to study the impact of the heterogeneity of enterprises on the relationship between the institutional vulnerability and OFDI decision.Then,in order to test the hypothesis further,the thesis used the different regression models and samples for robustness test,and further analyzed the response mechanism of different types of enterprises to institutional vulnerability.At last,the paper draws the conclusion and puts forward the suggestions and countermeasures from the government and the enterprises point of view.Through the study of this thesis,the author found that when different levels of the institution do not develop at the same rate,there will be institutional vulnerability resulting from internal friction,conflict and unbalance.Faced with such institutional vulnerability,Enterprises will have the cognitive complexity of the market institutional environment and the relationship complexity and will increase business costs and reduce business efficiency,both of which may impel the enterprises get away from their own country through outward FDI as a strategic response to circumvent the institutional vulnerability,to reduce the cognitive complexity and the relationship complexity so that they can reduce transaction costs and increase efficiency.Through the annual sample of more than 20,000 enterprises in China of seven years,we find that the institutional vulnerability of the provincial level is related to the increase of OFDI decision-making.However,when the productivity of enterprises is higher,the scale is larger and the ability of learning and imitation is more strengthened,the relationship between them will be weaker,and export-intensity of the enterprises will strengthen their correlation.However,the response mechanisms of different types of enterprises will be different.That is,state-owned enterprises have stronger ability to deal with institutional vulnerability than other enterprises.All in all,the concept of institutional vulnerability in this thesis is expanded,which enriches the viewpoints based on institutional foundation,adds new perspectives for institutional avoidance theory and provides a new perspective of outward foreign direct investment incentives and new insights for outward foreign direct investment.