Research On The Impact Of Host Country's Financial Development On My Country's OFDI

With the continuous advancement of the globalization process,economic and trade cooperation between countries has become increasingly close.As an important part of the globalization process,Outward Foreign Direct Investment(OFDI)has gradually become one of the main ways for China to participate in international economic and trade cooperation.In 2017,China's Outward foreign direct investment flow was US$158.29 billion,ranking third in the world.With the introduction and gradual advancement of the“Belt and Road Initiative" initiative,China's foreign direct investment in countries along the route has grown at a faster rate,but the scale of investment varies widely among countries.Therefore,many scholars began to analyze the factors affecting China's OFDI from both the home country and the host country,mainly including the economic development level of the home country and the host country,the trade links between the two countries,institutional factors,inflation rate and other factors,however,there is relatively little attention to financial development factors.The research based on the perspective of financial development is only based on the analysis of China's financial development level,and there are still many gaps in the impact of China's OFDI from the perspective of host country financial development.This paper uses a combination of theory and empirical research to study the impact of host country's financial development on China's OFDI.Firstly,the theoretical part constructs the theoretical model and influence path of the host country's financial development affecting China's OFDI.On this basis,the corresponding indicators are selected from the four dimensions of financial scale,structure,efficiency and stability to measure the financial development level of the host country.Taking the market size,technical factors,natural resources,inflation rate and institutional quality of the host country as well as the economic and trade closeness with China as the control variables.It compares and analyzes the financial development under different dimensions of each host country along the route and the status of China's OFDI.In the empirical part of this paper,based on the availability of data,we selected the OFDI panel data of 57 host countries along the "Belt and Road" from 2008-2017 as a full sample.Due to the large differences in economic development of host countries,in order to further analyze the specific impact mechanism of financial development of host countries with different incomes on China's OFDI,this paper divides the whole sample into three sub-samples of high-income,middle-income and low-income level according to the World Bank's 2017 per capita income for empirical research.The Hausman test is performed after establishing the empirical model.The regression analysis was performed using the fixed effect model.The empirical results show that:(1)From the full sample of countries along the route,the improvement of financial development indicators under the various dimensions of the host country has a positive effect on the development of OFDI in China,and the promotion of financial stability is very large.It shows that the investment subject of China has a strong preference for the financial stability of the host country and has strong risk aversion characteristics.(2)From the three sub-samples of income group,the improvement of financial development indicators of the host country has a major positive effect on China's OFDI,the results of low and middle-income countries are consistent with the whole sample.The improvement of the financial development level of host countries under different dimensions has a positive impact on OFDI.The empirical results of high-income countries are quite different from the whole sample.The improvement of financial efficiency and financial structure dimension has a reverse inhibitory effect on China's OFDI,but it has little effect compared with the promotion of financial stability indicators.(3)The natural resources,technical factors,market scale,stability of macroeconomic and institutional environment and close economic and trade ties with China are positively attractive to Chinese investment entities.Based on the above conclusions,the paper proposes that investors should choose countries with higher financial development as investment targets to minimize investment risks;With the "One Belt,One Road" initiative,we encourage investment entities to expand their investment scale in many developing countries along the route,and at the same time increase their emphasis on risk prevention and control;Government departments should improve the relevant financing policies of Chinese enterprises in the host country,encourage enterprises to make good use of the two markets,two resources to improve their productivity level and market competitiveness.