Property rights protection and outward foreign direct investment: Evidence from China

Zhaolin Wang and Jingwen Yu

The Journal of International Trade & Economic Development, 2025, vol. 34, issue 5, 1114-1142

Abstract: To explain the remarkable increase in the amount of outward foreign direct investment (OFDI) from China, we utilize firm-level OFDI data and employ a difference-in-differences design to identify the causal effect of the Property Law enacted in 2007 on firms’ OFDI decisions. The results reveal that, first, the enactment of the Property Law increases the likelihood and the frequency of OFDI. Second, financial constraints are the main driving force motivating firms’ OFDI. Third, the enactment of the Property Law has heterogeneous effects. Firms located in regions with a low degree of financial marketization or a high degree of government intervention experience a more pronounced effect. This suggests that the quality of the institutions is important. Overall, we present a novel explanation for the sharp increase in the amount of OFDI from China after 2007 and provide new empirical evidence on the effect of security interest system reform.

Date: 2025
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DOI: 10.1080/09638199.2024.2369761

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