Institutional Analysis and the Determinants of Chinese FDI

Abstract

Building on prior literature, this paper provides an empirical analysis of the impact of the Chinese institutional environment on its globalization patterns. A framework is presented through which distortive government policies act upon existing country and firm‐specific advantages, giving rise to institutional‐specific (dis)advantages. The applicability of this framework is then tested empirically through an unrestricted regression model that controls for the standard explanatory factors of inter‐country foreign direct investment (FDI) in comparing state and private sector outbound foreign direct investment (OFDI) determinants. This study concludes that institutional discrimination creates relative advantages for state‐owned firms at a cost to private enterprise, leading to divergences in IB strategies.