Regional Institution Quality And Foreign Divestment

Since the reform and opening up,foreign direct investment(FDI)has played an important role in China's economic development.Since large foreign divestment has negative effects,it is important to study foreign divestment.As a rising developing country,China's regional institution development is unbalanced.Low institution quality has negative effects on foreign enterprises,prompting foreign divestment.Therefore,it is necessary to study how regional institution differences affect foreign divestment.Dividing institution into five aspects,this paper theoretically analyses impact of regional institutions on foreign divestment and puts forward hypotheses.Intellectual property protection lowers foreign divestment probability by increasing R&D and special investment,protecting innovation revenue,and encouraging staff to invest in high technology;legalization affects by alleviating "liability of foreignness" and price distortion of intermediates;corruption control affects by alleviating "liability of foreignness" and operating cost;financial distortion affects by inefficient asset transaction,highlighting advantages and enhancing mutual complementarity;economic marketization affects by alleviating "liability of foreignness" and promoting cross-regional expansion.Based on data of foreign-invested manufacturing enterprises from China Industrial Enterprise Database from 1998 to 2007,this paper uses discrete-time survival analysis to test hypotheses.Results show that intellectual property protection,contract enforcement,corruption control and economic marketization lower foreign divestment probability,while financial marketization has adverse effect.After changing institution measurement,changing econometric model and correcting endogeneity,the result is still robust.Further analysis proves the above-mentioned influence mechanism.It is also found that large foreign enterprises benefit from inefficient contract execution,and foreign enterprises jointly invested with state-owned capital benefit from corruption.This paper provides enlightenment for foreign capital utilization.