, Pages 54-67
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This study uses SDM model, SLM model and SEM model to investigate the impacts of the institutional environment of the home country on OFDI dual margin. The study reveals that there is a spatial spillover effect of the institutional environment on the dual margin. Then, The institutional environment is divided into economic environment, political environment and legal environment. The degree of financial support, legalization and corruption all have significant influence on the dual margin, but the impacts on the margin of expansion and the margin of intensification are discrepant. Furthermore, in order to analyze the regional heterogeneity of the impact of institutional environment factors on dual margin, China is divided into three regions, namely east, middle and west for sub-sample study. The study found that the impact of institutional environment does exist regional differences and spatial spillovers. Our results remain unchanged after robustness checks.
Since 2008 when the world economy was impacted by the outbreak of the global financial crisis, over the past decade, global FDI has been lacking in growth momentum, and been sluggish and stagnant for a long time. Affected by COVID-19, global foreign direct investment in 2020 was about $1 trillion, down 35 percent from about $1.5 trillion in 2019, which is lower than the trough after the global financial crisis in2009.1To reverse the current sluggish situation of international direct investment in post-pandemic era, policy makers around the globe have intensified institutional reforms based on their own institutional environment. On the whole, most of the newly formulated investment policies and measures in most countries continue to move towards liberalization and facilitation (Chen et al., 2012; He & Guo, 2009; Li, 2012). Many countries have lowered or eliminated the threshold for foreign investors in some industries and further streamlined the administrative examination and approval procedures for foreign investment in China and some countries have even formulated new fiscal incentive measures targeted at FDI in specific industries and regions. Additionally, in order to better promote the development of international direct investment, international investment agreements between countries have been supplemented and revised accordingly (Alan et al., 2004; Benassy et al., 2010; Guo & Huang, 2010). UNCTAD statistics show there are 2896 bilateral investment treaties worldwide so far, with 2337 in force, of which over one-third of the measures have new restrictions or regulations added.1 Thus it can be seen that governments of all countries attach great importance to the impact of the institutional environment on international direct investment, and expect to create a favorable international investment environment through institutional reforms, thereby attracting more high-quality foreign capital and improving the performance gains of domestic enterprises in transnational investment and operations (Araugo et al., 2015; Chen and Li, 2011; Zeng & Yu, 2020). The study of OFDI from the perspective of home country's institutional environment not only has a strong explanatory power for China's OFDI in the process of reform and opening up, but also other developing countries and emerging economies may face the same problems in outward investment, such as the late start time of outward direct investment, the relatively immature development of market economy, and the imperfect management and system of the government. Therefore, China's exploration in the field of international investment is of great practical reference significance to the international investment of developing countries and emerging economies with similar development experiences and levels.
With China as the research object, the influence mechanism of the home country's institutional environment on the OFDI dual margin is discussed in this thesis by splitting the OFDI into the extensive margin and the investment margin, and building a OFDI model with the home country's institutional environmental factor embedded. And on this basis, a spatial Dubin model is built to study the impact of the institutional environmental on China's OFDI dual margin; to further study the spatial differences of institutional environmental on China's OFDI dual margin, three major areas: eastern, central and western regions is surveyed as sub-samples. Finally, the conclusions is obtained by summarizing the results of theoretical and empirical research.
The likely marginal contribution of this study is: Firstly, our study expands the relevant studies on institutional environment and OFDI, Most of the previous literature believes that the institutional environment of the host country has an important impact on the enterprises' overseas investment from the static perspective, the institutional environment of a country or region not only affects its own region but also has spillover effects on other regions, the paper discusses how institutional environment affects a country's foreign investment from the dynamic perspective of the home country. Second, we find that the expansion margin and the intensive margin of the institutional environment for outward investment are different. Previous literatures mainly regarded outward direct investment as a whole. By referring to the binary decomposition method of OFDI growth of Yeaple (2009) and Araujo et al. (2015), this paper divides outward investment into extended margin and intensive margin and discusses the different influences of institutional environment on the dual margin of investment. Thirdly, the influences of the different institutional environments of the home country on the dual marginal have regional heterogeneity. Different regional financial support, legalization level, intellectual property protection and corruption level may affect the dual margin and spatial spillover of regional investment. (Chen et al., 2016). Therefore, three spatial panel models are selected in this paper: SDM model, SLM model and SEM model, to study the influence of the home country institutional environment on the OFDI regional heterogeneity, and to analyze the spatial spillover effect of the home country institutional environment.
This paper is organized as follows: Section 2 reviews the related literature on Constitutional environment and OFDI. Section 3 introduces the data, variables, and methodology used in this study. Section 4 provides the empirical results and analysis. Section 5 provides the conclusion.
Measurement of Institutional Environment
Due to the different emphasis of research, there lacks a consensus on the measurement method of the institutional environment in academia, and international organizations and scholars at home and abroad have their own measurement methods.
International Organizations' Measurement of Institutional Environment
To better measure the institutional environments of different countries, some international organizations have issued corresponding institutional environment measurement indicators, which have
Since that the impact of the home country's institutional environment on the OFDI dual margin is not independent of each other, for example, a province's OFDI dual margin is not only affected by the local institutional environment, but may also be affected by institutional environments and OFDI in other provinces. This article adopts the spatial econometric analysis model that takes into consideration the spatial correlation of the impact of the home country's institutional environment to study
Moran's I and Geary's C test
Before performing spatial regression analysis on the model, the author of this paper firstly tested whether there is spatial autocorrelation in the OFDI dual margin of China's provinces by adopting the two spatial correlation test methods: Moran's I and Geary's C.
From the test results in Table 1 and Table 2, it can be known that all the tests rejected the null hypothesis at the 1% significant level, indicating that the OFDI extensive margin and intensive margin of China's provinces feature
The previous literature has studied the influence of institutional environment on foreign investment from a static perspective. In this paper, the spatial econometric model is further used to study their effects from a dynamic perspective, Our results indicate that China's OFDI dual margin is to affected by the home country's institutional environment. Newly built overseas branches and additional outward investment by enterprises are not only subject to the local institutional environment, but
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Location selection of foreign direct investment: Is institutional factor important? -- based on the perspective of investment motivation
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How emerging market governments promote outward FDI: Experience from China
Journal of World Business
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Industrial location and public infrastucture
Journal of International Economics
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Outward foreign direct investment from emerging economies: Escaping home country regulative voids
International Business Review
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Firm heterogeneity and structure of U.S. Multinational activity
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Investment location and institutional development in transition economies
International Business Review
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Evolution of bilateral capital flows to developing countries at intensive and extensive margins
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Factor flow, spatial knowledge spillover and economic growth in regional innovation effect R&D
Economic Research Journal
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Institutional determinants of foreign direct investment
The World Economy
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The determinants of Chinese outward foreign direct investment
Journal of International Business Studies
Research on the growth path of China's OFDI -- Based on the perspective of binary margin analysis
Asia Pacific Economics
China's investment in foreign countries
Institutional distance, "demonstration effect" and location distribution of OFDI in China
International Trade Issues
The influence of host country corruption on China's OFDI under institutional constraints: A threshold effect test based on transnational panel data
Policy motivation of China's OFDI: A new empirical study
Technical Economics and Management Research
Research on the influence of institutional environment of countries along the "belt and road" on location choice of Chinese enterprises' overseas M&A
World Economic Research
Study on the influence of home country system factors on China's inter-provincial OFDI: An empirical analysis based on the panel data GMM model of 31 provinces and cities
The influence of institutional distance on outward FDI: Empirical research based on dynamic panel model
International Economic and Trade Exploration
Sample selection bias as a specification Error
Location analysis of China's OFDI: Are political factors important?
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Regional economic growth and its Convergence in China: Spatial panel data analysis
The institional effectson strategic alliance partner selection in transition economies:China VS Russia
China's investment in Developing Countries - does the host country system matter?
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