Institutional Impact of Foreign Direct Investment in China

Cheryl Long, Jin Yang and Jing Zhang

World Development, 2015, vol. 66, issue C, 31-48

Abstract: We provide firm level empirical evidence that the presence of foreign direct investment (FDI) has positively affected the institutional quality of the host regions in China. Specifically, Chinese domestic firms located in regions with a higher level of FDI tend to enjoy a lower level of tax and fee burdens, less arbitrariness in such burdens, as well as better legal protection. To address the potential issue of endogeneity, we adopt the instrumental variable approach. In addition, we explore the specific mechanisms through which the institutional impact is materialized and provide various extensions of the empirical findings that offer further support for the FDI-induced institutional improvement argument.

Keywords: Asia; China; FDI; institutional impact; legal protection; tax burden (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:66:y:2015:i:c:p:31-48

DOI: 10.1016/j.worlddev.2014.08.001

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