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The Determinants of Location Choices of China's ODI: Institutions, Taxation and Resources

Author

Listed:
  • Yongqin Wang

    (School of Economics, Fudan University, Shanghai 200433, China)

  • Julan Du

    (Department of Economics, The Chinese University of Hong Kong, Hong Kong, China)

  • Kai Wang

    (Department of Economics, The Chinese University of Hong Kong, Hong Kong, China)

Abstract

China has become the third largest source of outward direct investment (ODI). This paper studies how institutions in the host countries affect the location choices of China's ODI. Based on a deal-level sample from 2002¨C2011, this paper empirically tests how political institutions, political stability, government effectiveness, regulatory quality, rule of law and contrd of corruption in the host countries affect the location choices of China's ODI. On top of these institutional factors, we study the effects of tax evasion and natural resources in host countries, and their interactions with institutional factors. We find that political institutions in the host countries are not major concerns of the ODI, while government effectiveness, regulatory quality, and control of corruption have significant effects on the locations of ODI. In addition, China's ODI tends to avoid countries with strict legal systems. Tax evasion and resources are also major motives of China's ODI. General institutional quality and tax evasion are substitutes in China's ODI location decisions.

Suggested Citation

  • Yongqin Wang & Julan Du & Kai Wang, 2015. "The Determinants of Location Choices of China's ODI: Institutions, Taxation and Resources," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 10(3), pages 540-565, September.
    • Handle: RePEc:fec:journl:v:10:y:2015:i:3:p:540-565
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-004-015-0024-6
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    Citations

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    Cited by:

    1. Lili Kang & Fei Peng & Yu Zhu & An Pan, 2018. "Harmony in Diversity: Can the One Belt One Road Initiative Promote China’s Outward Foreign Direct Investment?," Sustainability, MDPI, vol. 10(9), pages 1-28, September.
    2. 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.
    3. Luo, Limin & Qi, Zhen & Hubbard, Paul, 2017. "Not looking for trouble: Understanding large-scale Chinese overseas investment by sector and ownership," China Economic Review, Elsevier, vol. 46(C), pages 142-164.
    4. Du, Julan & Zhang, Yifei, 2018. "Does One Belt One Road initiative promote Chinese overseas direct investment?," China Economic Review, Elsevier, vol. 47(C), pages 189-205.

    More about this item

    Keywords

    China; ODI; institutions; tax; resources;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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