The Impact Of Institutional Distance On China’s OFDI

The rise and development of new institutional economics provides a new perspective for the current study of international direct investment,the research literature on the relationship between institutions and OFDI has begun to emerge.At present,the research on relevant institutions and foreign direct investment mainly focuses on the institutional quality of the host country or home country and the impact of institutional differences on direct investment by using a single indicator.On one hand,the selection and division of institutional distance indicators are not detailed enough,on the other hand,the literature on the distance between China and the countries along “the Belt and Road” is relatively rare.Therefore,under the macro background of the “Belt and Road” initiative,China’s investment in host countries has gradually increased.Considering the differences in economy,politics,law and culture between China and these countries along the route,this thesis discusses the impact on OFDI from formal institutional distance(mainly including the distance of economic institution,political institution and legal institution)and informal institutional distance(represented by cultural distance)between China and “the Belt and Road” countries and offers supplementary test and sub-sample test.They are aimed at providing better suggestions for the construction of “the Belt and Road” in China.This thesis firstly summarizes the development of foreign direct investment theory and institutional economics theory,and then summarizes the relevant literatures on the current research of institution and foreign direct investment,mainly from institutional quality and institutional distance.After a brief literature review,the theoretical mechanism of institutional distance affecting foreign direct investment is discussed and then this study conduct an empirical study using the China’s OFDI stock data to countries along “the Belt and Road” from 2003-2016.The results of the full sample test show that in the formal institutional distance,the impact of economic institutional distance on OFDI is significantly positive,the legal institutional distance is significantly negative,and the political institutional distance is significantly negative when considered separately,but not significant when considered comprehensively.The supplementary test shows that China is more inclined to invest host countries that economic institution is superior and the legal institution is similar to China;the influence of informal distance on China’s OFDI shows a "U"-type trend,that is,with the expansion of informal distance,China’s foreign direct investment will gradually rise after falling to a certain point.As for results of the regression of traditional variables,the research finds that China is more willing to invest in a host country with a larger market,a higher degree of market openness,a lower inflation level and a closer geographical distance between the two countries,while the demand for resources and technology of host countries are relatively small.Further sub-sample testing of all countries shows that informal distance has a greater impact on European countries;legal institutional distance is an important factor affecting China’s direct investment in low-income countries and the positive impact of informal distance to the low-income country is concealed by the “U” trend of countries with high income levels,it means that the “U” trend of informal distance is mainly reflected in European countries or countries with high income levels.Finally,this thesis proposes relevant policy recommendations to enterprises and the government from different perspectives.