A Study On The Impact Of Macro Leverage Ratio Of Host Country On China’s OFDI

With the proposed strategies of "going global" and "The Belt and Road",China’s outward foreign direct investment(OFDI)continues to grow.By 2021,China’s outward foreign direct investment flow grows rapidly,ranking among the top three countries in the world for ten years.After a long period of development,the research on OFDI involves economic,political and cultural factors.Meanwhile,after the 2008 financial crisis,in order to resolve the adverse effects brought by the crisis and stabilize financial development,many economies implemented expansionary policies to intervene.These policies promoted economic growth,but also resulted in a substantial rise in the macro leverage ratio.Scholars found that there was an inverted U-shaped relationship between the macro leverage ratio and economic growth.In recent years,the global macro leverage ratio has been getting higher and higher,which has exceeded the appropriate threshold value studied by scholars.There are more and more concerns that the excessive leverage ratio may bring systemic financial risks,and the deleveraging policy is highly advocated.The macro leverage ratio has indeed attracted a lot of attention.As a part of a country’s economic environment,will the macro leverage ratio have an impact on OFDI?Based on the macro leverage ratio data of the Bank for International Settlements(BIS),this paper studies the influence of the macro leverage ratio of the host country on China’s outward foreign direct investment,and conducts in-depth analysis from three sub-indexes.In addition,based on the economic development level of the host country,the samples are divided into developed economy samples and developing economy samples to explore the heterogeneous influence of macro leverage ratio.Considering that different investment motivations may have impacts on China’s foreign direct investment,this paper also adds different investment motivations into the model for research.Firstly,this paper systematically introduces the research background and significance,macro leverage ratio and the concept of OFDI,divides the research scope of this paper,and describes the current research on these two variables in detail.Then,after briefly describing the G20 international macro leverage ratio and the status quo of China’s direct investment in G20 countries,this paper analyzes the mechanism of the influence of host country’s macro leverage ratio on China’s OFDI,and proposes three hypotheses.Secondly,this paper selects the stock data of China’s OFDI in 32 G20 countries from 2007 to 2021 from the Statistical Bulletin of China’s OFDI published by the Ministry of Commerce,and uses the macro leverage ratio data from BIS.Then the econometric model will be built on the basis of the gravity model,and the regression analysis of panel data will be carried out by Stata16.The research results are as follows:On the one hand,the full sample study finds that the macro leverage ratio of the host country is negatively correlated with economic growth,while the macro leverage ratio of the host country has a significant positive correlation with China’s OFDI.Since high leverage ratio and high debt may result in investment returns lower than costs,enterprises and governments may reduce investment expenditure.In this case,it will need foreign direct investment to meet the domestic demand.On the other hand,the macro leverage ratio is summed up by the leverage ratio of nonfinancial enterprises,the leverage ratio of government sector and the leverage ratio of households.The regression shows that the three leverage ratios have significant positive impacts on China’s OFDI,and the correlation coefficient of government leverage ratio is the highest,followed by that of non-financial enterprises,and that of resident leverage ratio is the lowest.Considering the influence of three kinds of investment motivation on China’s OFDI,the interaction test of the three kinds of investment motivation shows that the interaction terms of the host country’s macro leverage ratio and government leverage ratio with innovative asset seeking and resource seeking investment motivation are significantly negatively correlated with China’s OFDI.The interaction term between the leverage ratio of non-financial enterprises or residents and the resource-seeking investment motivation has a significant negative impact on China’s OFDI.In the other cases,the relationship is not significant.In addition,since G20 members cover both developed and developing economies,this paper also conducts a heterogeneity analysis on the data to explore whether the macro leverage ratio of economies at different developing levels will have different impacts on China’s OFDI.The results show that,in G20 countries,the macro leverage ratio,nonfinancial corporate leverage ratio and government leverage ratio of developed and developing economies have the same effect on China’s OFDI without heterogeneity.However,the impact of household leverage ratio on China’s OFDI is heterogeneous,and the impact of household leverage ratio on developing economies is not significant.In order to ensure the rigor of the research results,the robustness test is conducted on the predicted variable with a lag of one period.The test results were consistent with the baseline regression results and passed the robustness test.Finally,based on the above empirical analysis and summary,this paper suggests that we should continue to strengthen the bilateral economic and trade cooperation between China and G20 countries.Although the macro leverage ratio of G20 countries is generally high,which may bring financial risks,investors don’t need to be excessively anxious.Be positive,and make the right investment decisions after taking other factors into consideration.However,investment is risky,and we need to pay attention to the systemic financial risks that may be brought about by excessively high macro leverage ratio.We need to timely evaluate the possible adverse effects or potential risk factors to prevent them from happening.