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Capital intensity, natural resources, and institutional risk preferences in Chinese Outward Foreign Direct Investment

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  • Yang, Jiao-Hui
  • Wang, Wei
  • Wang, Kai-Li
  • Yeh, Chung-Ying

Abstract

Contrary to the international investment theory, there exists a curious pattern that Chinese OFDI is heavily located in countries with poor institutional quality, which was referred to as the puzzle of Chinese OFDI institutional risk preference. Recent literature has attributed this phenomenon to the non-market behaviors of Chinese multinationals. In this study, however, we investigate whether allowing for a comprehensive consideration of market factors such as capital intensity and natural resources of host country in determining the location of Chinese OFDI, could overturn the puzzle. We revisited the relationship between host-country institutional quality and Chinese OFDI, by using a panel data of Chinese outward investment in 132 economies from 2003 to 2012. The results suggest that the so-called unique institutional risk pattern of Chinese OFDI is simply a statistical artefact but not a real phenomenon. Without exception, Chinese multinationals are prone to locate their investments in countries with high institutional quality, less economic development and more natural resources, which was motivated by higher investment return and access to cheaper resources.

Suggested Citation

  • Yang, Jiao-Hui & Wang, Wei & Wang, Kai-Li & Yeh, Chung-Ying, 2018. "Capital intensity, natural resources, and institutional risk preferences in Chinese Outward Foreign Direct Investment," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 259-272.
    • Handle: RePEc:eee:reveco:v:55:y:2018:i:c:p:259-272
    DOI: 10.1016/j.iref.2017.07.015
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    11. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "The foreign direct investment-institution nexus in oil-abundant countries," Working Papers 1903, Department of Applied Economics II, Universidad de Valencia.
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    14. Amar Anwar & Ichiro Iwasaki, 2022. "Institutions and FDI from BRICS countries: a meta-analytic review," Empirical Economics, Springer, vol. 63(1), pages 417-468, July.
    15. Xing Zhou & Quan Guo & Ming Zhang, 2021. "Impacts of OFDI on Host Country Energy Consumption and Home Country Energy Efficiency Based on a Belt and Road Perspective," Energies, MDPI, vol. 14(21), pages 1-25, November.
    16. Alfalih, Abdullah Abdulmohsen & Bel Hadj, Tarek, 2020. "Foreign direct investment determinants in an oil abundant host country: Short and long-run approach for Saudi Arabia," Resources Policy, Elsevier, vol. 66(C).
    17. Shi, Buchao & Huang, Liangxiong & Wei, Shengmin & Geng, Xinyue, 2022. "Overseas industrial parks and China's outward foreign direct investment," Journal of Asian Economics, Elsevier, vol. 83(C).
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    More about this item

    Keywords

    Institutional quality; Capital intensity; Natural resources;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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