The Role of Institutional Linkages and Regional Institutions in the Location Choice of Outward Foreign Direct Investment: Empirical Evidence from Chinese Firms

Juan Li, Yi Qu, Dayu Wang, Nan Zheng

Research output: Contribution to journalArticlepeer-review

Abstract

Differently from the prior studies that look at the determinants of Outward foreign direct investment (OFDI) location choice, based on the institution theory and employing a comprehensive and unique micro-level dataset of Chinese firms, this study is the first to integrate institutional linkages (Confucius Institute) and regional institutions into one framework and looks at the role of the location choices of Chinese OFDI. The results show that Chinese firms prefer to invest in countries with the presence and higher number of Confucius Institutes including Confucius classrooms. Moreover, the institutional linkage of Confucius Institutes can alleviate the possible negative effects caused by the distance between China and the host country, which suggests Confucius Institutes help Chinese firms against liabilities of foreignness and risks and costs of operation in more distant host countries. We also find that the availability and quality of China‘s regional institutions have a strong impact on local firms‘ willingness and capability of participating.

Original languageEnglish
Pages (from-to)10-26
Number of pages17
JournalJournal of Social Economics Research
Volume9
Issue number1
Early online date4 Jan 2022
DOIs
Publication statusE-pub ahead of print - 4 Jan 2022

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