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Institutional Difference and FDI Location Choice: Evidence from China

Author

Listed:
  • Che, Yi
  • Du, Julan
  • Lu, Yi
  • Tao, Zhigang

Abstract

Rest upon an extensive data set on Foreign Invested Enterprises (FIEs) in China, we investigate the role of institutional difference in determining the locational choice of foreign direct investment (FDI). Estimation results using firm-level discrete choice model suggest that FIEs from source countries that are more remote institutionally from the Chinese mainland exhibit a higher degree of sensitivity toward regional economic institutions in their choice of FDI location. Furthermore, we find that FIEs coming from countries with better institutions than China are more sensitive to institutional difference. Interestingly, we find that the deterrent effct of institutional distance on FDI entry is mitigated for FIEs coming from countries with more ethnic Chinese in their overall populations.

Suggested Citation

  • Che, Yi & Du, Julan & Lu, Yi & Tao, Zhigang, 2017. "Institutional Difference and FDI Location Choice: Evidence from China," MPRA Paper 77158, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:77158
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    References listed on IDEAS

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    Cited by:

    1. Wang, Xiaoying & Anwar, Sajid, 2022. "Institutional distance and China's horizontal outward foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 1-22.
    2. Chang, Pao-Li & Chen, Yuting, 2021. "Informal institutions and comparative advantage of South-based MNEs: Theory and evidence," Journal of Development Economics, Elsevier, vol. 148(C).
    3. Chengchun Li & Yun Luo & Glauco Vita, 2020. "Institutional difference and outward FDI: evidence from China," Empirical Economics, Springer, vol. 58(4), pages 1837-1862, April.

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    More about this item

    Keywords

    Institutional Difference; FDI Location Choice; China;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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