Relationship Between Institution Of Home Countries And OFDI

Since the financial crisis broke out in 2008, the price of assets overseas has been fallen sharply, and there has been a trend of overseas M&A, foreign direct investment has become outstanding again in international economic activities. The traditional FDI theories focus on monopoly advantages owned by FDI companies, not the reasons why they own the advantages. With the rapid development of new institutional economics, researches about institution pushing FDI grow, which based on the "institution-based view" have been a large number. In this paper, the author hopes to discuss the how institutions of home countries produce FDI three advantages, using the method of institutional economics in OIL framework.Based the OIL paradigm, the author demonstrates how the institutions of home countries produce the FDI three advantages in terms of transaction cost theory, property rights theory and national characteristics of the home country advantage theory. For the ownership advantages, the author discusses how political, economic, financial and integrated institutions affect the technical superiority, financing advantages, human resource advantages and brand-marketing advantages of FDI companies; for the internal advantages, the author discusses how institutions of home countries affect the advantage of equity investment and multinational operation management; for the home country location advantages, the author discusses the mechanism between institutions of home countries and the popularity of companies according to their home countries.In empirical test, this paper choses 45 countries as samples, using their OFDI data during 2000-2012 to make a fixed effects panel-data regression analysis. Firstly, the author tests the relationship between political, economic, financial and integrated institutions of home countries and their OFDI flows, the result shows that except for financial institutions, all the institutions of home countries have a significantly positive relationship with their OFDI. And a further investigation on political and economic institutions shows that administrative efficiency, the international balance of payments to GDP and GDP growth are significantly positively correlated with OFDI under a 10% level. Finally, the author researches the effect on OFDI by institutions through the three advantages, the result shows that the technical advantage which is represented by a cross-term consisting of patent and high-tech exports, and the internal advantages which is represented by the proportion of market capitalization vs. GDP have a significantly positive correlation with OFDI, however, the location advantages which is represented by the amount of BITs has no significant relationship with OFDI.