An Empirical Study On The Effect Of Money Laundering On China’s Outward Foreign Direct Investment

Under the condition of open economy, International investment is an important way for a country to get into economic globalization, foreign direct investment, as an important part of international investment, has become a continuous power for China’s economic development. China is the largest developing country in the world, at the same time is also the world’s second largest economy, this dual identity promote us to use foreign capital to add vitality to the sustainable development of the economy, on the other hand, we also need to go abroad to open up the market, learning technology, exploit resources. At present, the foreign investment in China has been ranked the world’s top three, right after the American and Japan, also, in the future, it will continue to maintain a rapid growth. Driving factors of Foreign Direct Investment in China is in many aspects, it include not only the traditional legitimate country, society, enterprise but also relate to the money laundering, illegal capital flight, corruption and other illegal factors, while the latter one will undoubtedly causes some damages to the economic efficiency, political environment, social justice between two countries. This paper focuses on the research of money laundering influence on China’s Outward Foreign Direct Investment, which has important theoretical and practical significance.This paper reviews the development course of China’s Outward Foreign Direct Investment, at the same time, from the aspects of investment scale, regional distribution and industry flows to analyze the status quo of China’s Outward Foreign Direct Investment, and through simple cost benefit analysis demonstrate that the money laundering is the potential driving factor to foreign direct investment.Based on the existing research results of scholars, this paper based on the knowledge capital model (KK model) as the foundation, choose50countries (area) which is placed in the rank of China’s investment stock during2007-2012as research object. We Focus on the effect of money laundering on China’s Outward Foreign Direct Investment. The result shows that:KK model can well explain China’s Outward Foreign Direct Investment in the non-high risk money laundering countries. Among all the factors, the national absolute market scale, state relative market size, the host country’s trade cost and investment cost have a positive effect, home country’s trade cost has a negative effect; to the countries which have a high-risk in money laundering, besides the factors of the KK model, also need to consider the influence of illegal factors like money laundering, and the impact of money laundering factors on China’s Outward Foreign Direct Investment is positive. Finally, through put factors:the tax rate, the government governance, investment environment and other variables into the model to validate the robustness of model, it turns out that the empirical model in this paper is robust.The factor in foreign direct investment is in many aspects, besides positive, legitimate factor, other illegal factors such as money laundering should also be incorporated into the theoretical framework of foreign direct investment as soon as possible.