An Empirical Analysis Of The Impact Of Institutional Factors On China’s Foreign Direct Investment

With rapid economic development, China attracts a large number of multinational companies investing in, playing an incredible role around the world. Meanwhile, increasing number of enterprises try their best to expand overseas market to obtain more benefits. Based on the perspective of investment motives, this paper utilized fixed effect model to study the influence of the host country institutional factors on outward foreign direct investment(OFDI) with the panel data from 58 Chinese OFDI destinations during 2003-2012. The results imply that the host country’s institutional factors play a significant role on China’s OFDI. More perfect the host country economy system is, more positively China invest; the smaller the cultural differences between the host country and China is, more positively China invest; the legal system of the host country has little effect on China’s OFDI. Meanwhile, out of different investment motives: expanding the market, seeking for natural resources, access to strategic assets, the host country’s institutional factors affect China’s OFDI in a different way. For expanding the market, investment in developing countries or developed countries, China take different strategies: when investing in developed countries, China often concerned more about the level of corruption and fiscal policy. And when investing in developing countries, more attention paid to the culture and the host country’s openness to trade. The less natural resources or strategic assets of the host country are, more impact cultural differences and the corrupt influence have on China’s OFDI. Host country’s fiscal policy will not affect the China’s OFDI. The more abundant natural resources or strategic assets of the host country are and more open trade is, more actively China invest in.