The Determinants of Location Choices of China's ODI: Institutions, Taxation and Resources
Yongqin Wang1(),Julan Du2(),Kai Wang3
1. School of Economics, Fudan University, Shanghai 200433, China 2. Department of Economics, The Chinese University of Hong Kong, Hong Kong, China 3. Department of Economics, The Chinese University of Hong Kong, Hong Kong, China
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 2002–2011, 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.
