The Impact Of Host Country Institutional Distance On China’s Foreign Direct Investment —An Empirical Study Based On “The Belt And Road” Nations’ Perspective

"The Belt and Road" initiative was put forward in 2013,aiming to adhere to the principles of joint consultation,joint construction and sharing,and create more opportunities for common development.In recent years,affected by the epidemic,China’s foreign investment has declined.However,China’s direct investment in the "the Belt and Road" countries has maintained a stable growth rate,which shows that China’s investment in the "the Belt and Road" countries is more stable,the investment risk is relatively lower,and the policy guarantee is more powerful.It is worth noting that there is a strong tendency of seeking natural resources and acquiring strategic resources in the location selection of Chinese enterprises’ foreign direct investment,which is also obvious in the "the Belt and Road" countries.However,considering the unique political,economic,cultural and geographical characteristics of the "the Belt and Road",we cannot simply study China’s investment motivation in the "the Belt and Road" countries from a single perspective of resource seeking.Therefore,this paper takes the institutional factors into consideration to explore how the system affects China’s direct investment in the "the Belt and Road" countries.According to the research of existing scholars,the impact of institutional quality on China’s foreign direct investment is diverse-some scholars believe that the high institutional quality of the host country promotes China’s foreign investment;Some scholars believe that it plays an inhibitory role.In terms of the mechanism of the impact of institutional quality on foreign direct investment,the impact of institutional quality on foreign direct investment has distinct regional characteristics: from a global perspective,China is more inclined to invest in developed countries or regions with perfect systems,and their perfect systems ensure the safety of investment;When considering the policy orientation or organization agreement and other reasons,the investment area is reduced to a certain area,the impact of the system may be differentiated-enterprises may continue to invest in countries with high system quality;It may also be inclined to carry out direct investment in some countries with poor institutional quality,so as to reduce their own transaction costs with lower access thresholds and regulatory standards.The relevant conclusions of institutional quality explain the path of institutional impact on foreign direct investment to a certain extent,but it examines the institutional quality of the host country from a single perspective,ignoring that the institution of the home country also has an impact on its foreign direct investment.In order to more comprehensively reflect the impact of the system between the two countries on the investment decision-making of the investment home country,some scholars proposed to connect the system quality of the two countries by constructing the concept of system distance,so as to improve the deficiencies of the relevant theories of system quality.The concept of institutional distance extends from institutional quality,and there are also three views on its impact on Foreign Direct Investment: Institutional proximity theory-the disadvantage of outsiders and economic diplomacy as the main influence path will enable Chinese enterprises to choose countries with small institutional gap with China when making foreign direct investment;Institutional escape theory-institutional arbitrage and strategic resource acquisition as the main influence paths will make China choose to invest in countries with large institutional gap;The classification theory holds that when the research objects are divided at different times,different regions and different organizations,the institutional distance of each part may have a compound impact on foreign direct investment.In the empirical research part,this paper selects the panel data of 58 countries of the "the Belt and Road" from 2013 to 2019 to empirically analyze the relationship between institutional distance and the impact of foreign direct investment in the "the Belt and Road" countries.Regional regression was carried out for all sample countries,Asian countries and European countries: institutional distance has a more prominent impact on Asian countries of the "the Belt and Road" initiative,while its impact on European countries is relatively insignificant.After a preliminary study on the impact of institutional distance on foreign direct investment,this paper further explores the possible nonlinear relationship between them.The test results of threshold effect show that there is indeed a nonlinear relationship between institutional distance and China’s foreign direct investment-when other variables are introduced as threshold variables,there are three characteristics between institutional distance and foreign direct investment: amplification effect,suppression effect and distortion effect.The above regression results are also in good agreement with the actual situation.Therefore,the conclusions of this paper are as follows: first,for the overall sample,the political system distance significantly inhibits China’s direct investment in the "the Belt and Road" countries,and the impact of economic system distance is not significant;In Asian countries,political system distance and economic system distance have a significant impact on China’s foreign direct investment.Political system distance shows a restraining effect,while economic system distance shows a promoting effect;In the European region,the influence of national political system distance is not significant,while the influence of economic system distance is more significant.Second,in the further study of the selected samples,it is found that there is indeed a nonlinear relationship between foreign direct investment and institutional distance.After the economic scale,labor force and scientific and technological development level of the host country reach the threshold parameter value,the relationship between the two will produce amplification,suppression and distortion effects,and the coefficients of explanatory variables will change significantly.