Ideological taboos, entry barriers, and FDI attraction: Evidence from China

Ruiming Liu, Yankun Kang and Jie Zhang

Journal of Asian Economics, 2021, vol. 76, issue C

Abstract: Developing and transitional countries often impose a wide variety of entry barriers on foreign direct investments (FDIs). One important reason behind these entry barriers is ideological taboos. However, do these taboos actually affect the inflow of FDIs? With the help of China’s “cultural system reform,” this study uses a panel data of 283 prefecture-level cities in China for 1994–2017 and the difference-in-differences method to evaluate the effect of the cultural system reform on regional FDI. We found that the cultural system reform remarkably promoted the inflow of FDIs by deregulating institutions and removing entry barriers, and the attraction of FDI has slowly increased along with the deepening of the reform. Our conclusions still hold after performing several robustness tests, thereby highlighting ideologies as important barriers to the inflow of FDIs into less developed countries.

Keywords: Ideological taboo; Entry barrier; Cultural system reform; FDI attraction; Difference in differences (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:76:y:2021:i:c:s1049007821000944

DOI: 10.1016/j.asieco.2021.101365

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