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Location Choice of Chinese Firms' OFDI from the Perspective of Specific Investment and Comparative Institutional Advantages

【Authors】
YANG Qijing, TAN Man
【WorkUnit】
Renmin University of China, 100872.
【Abstract】

There are two competing views on the location choice of Chinese firms' outward foreign direct investment (OFDI): the institutional risk appetite vs. the institutional risk aversion, which leads to some theoretical and practical problems. From the perspective of specific investment and comparative institutional advantages, this paper analyzes the location choice of Chinese firms' OFDI, using data of Chinese firms' greenfield investment for the period of 2006-2017. The results show that high-intensity specific investment tends to be in countries with a good institutional environment, while low-intensity specific investment prefers countries with rich resources but a poor institutional environment. Further analysis shows that, compared to the contract system, Chinese companies value more the sound property rights protection system in the host country for high-intensity specific investment. These findings suggest that Chinese firms do not have a simple institutional preference, but make rational location choices by weighing both the intensity of the specific investment and the quality of the institutional environment in the host country.


JEL:F21, K11

【KeyWords】
Specific Investment, Incomplete Contract, Institutional Environment, Outward Foreign Direct Investment