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Navigating the Policy Risk Landscape: How Emerging Economy MNEs Make OFDI Location Choices

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  • Miao Wang

Abstract

This study examines the impact of policy risk differences on outward foreign direct investment (OFDI) of emerging economies’ multinational enterprises (MNEs) based on organisational learning theory. A framework analyses the relationship between policy risk differences and OFDI, and the moderating effects of institutional quality and economic dependence. Using China’s OFDI data from 2009 to 2021, empirical results show policy risk differences negatively impact Chinese enterprises’ OFDI, while institutional quality and economic dependence weaken this effect. Heterogeneity analysis indicates the negative impact is significant in more developed hosts, with insufficient political relations and less Chinese aid. Findings suggest Chinese multinationals are risk-averse, preferring hosts with smaller policy risk differences, considering the institution, development and bilateral political-economic exchanges in location decisions.

Suggested Citation

  • Miao Wang, 2025. "Navigating the Policy Risk Landscape: How Emerging Economy MNEs Make OFDI Location Choices," China Report, , vol. 61(4), pages 487-508, November.
    • Handle: RePEc:sae:chnrpt:v:61:y:2025:i:4:p:487-508
    DOI: 10.1177/00094455251366627
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    References listed on IDEAS

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    1. Diego Quer & Enrique Claver & Laura Rienda, 2017. "Cultural distance, political risk and location decisions of emerging-market multinationals: a comparison between Chinese and Indian firms," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 22(4), pages 587-603, October.
    2. Quintin H. Beazer & Daniel J. Blake, 2018. "The Conditional Nature of Political Risk: How Home Institutions Influence the Location of Foreign Direct Investment," American Journal of Political Science, John Wiley & Sons, vol. 62(2), pages 470-485, April.
    3. Tang, Ryan W. & Buckley, Peter J., 2022. "Outward foreign direct investment by emerging market multinationals: The directionality of institutional distance," Journal of Business Research, Elsevier, vol. 149(C), pages 314-326.
    4. Daniel J. Blake & Caterina Moschieri, 2017. "Policy risk, strategic decisions and contagion effects: Firm‐specific considerations," Strategic Management Journal, Wiley Blackwell, vol. 38(3), pages 732-750, March.
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