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Capital intensity, natural resources, and institutional risk preferences in Chinese Outward Foreign Direct Investment

Jiao-Hui Yang, Wei Wang, Kai-Li Wang and Chung-Ying Yeh

International Review of Economics & Finance, 2018, vol. 55, issue C, 259-272

Abstract: Contrary to the international investment theory, there exists a curious pattern that Chinese OFDI is heavily located in countries with poor institutional quality, which was referred to as the puzzle of Chinese OFDI institutional risk preference. Recent literature has attributed this phenomenon to the non-market behaviors of Chinese multinationals. In this study, however, we investigate whether allowing for a comprehensive consideration of market factors such as capital intensity and natural resources of host country in determining the location of Chinese OFDI, could overturn the puzzle. We revisited the relationship between host-country institutional quality and Chinese OFDI, by using a panel data of Chinese outward investment in 132 economies from 2003 to 2012. The results suggest that the so-called unique institutional risk pattern of Chinese OFDI is simply a statistical artefact but not a real phenomenon. Without exception, Chinese multinationals are prone to locate their investments in countries with high institutional quality, less economic development and more natural resources, which was motivated by higher investment return and access to cheaper resources.

Keywords: Institutional quality; Capital intensity; Natural resources (search for similar items in EconPapers)
JEL-codes: F21 G32 (search for similar items in EconPapers)
Date: 2018
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