Abstract
This article investigates the effects of China’s outward direct investment (ODI) on the institutional quality of the Belt and Road (B&R) countries. Based on a panel data set of 63 B&R countries during the period 2003 to 2016, we find that China’s ODI improves the institutional quality of B&R countries not only in the short run but also in the long run. Further, although China’s ODI exerts no differential impacts on host country institutional dimensions of “control of corruption,” “government effectiveness,” and “political stability” in countries with different natural resource endowments, it improves their institutional dimensions of “regulatory quality” and “rule of law,” implying that China’s ODI may help the host B&R countries minimize the “resource curse”. As one of the most important strategies for China’s opening-up development in the current era, the B&R initiative serves as means to promote sustainable development of B&R countries. The article therefore contributes to existing scholarship on the institutional effects of China’s ODI and sheds light on the mechanisms that drive sustainable development.
Highlights
Scholars have long recognized that better institutional quality of host countries encourages inflows of foreign direct investment (FDI) [1,2,3,4,5,6,7,8,9,10]
Columns (2) to (7) show that China’ ODI intensity (CDII) has significant and positive relationships with the first five institution variables. This suggests that a host country with a higher share of China’s outward direct investment (ODI) tends to have higher levels of control of corruption, government effectiveness, political stability, regulatory quality, and rule of law
It means that for most of the countries of the Belt and Road (B&R) initiative, China’s ODI tends to have a positive impact on the host country’s institutional framework, except for voice and accountability. These results provide support to H1 to a large extent, which states that China’s ODI improves institutional quality of B&R countries
Summary
Scholars have long recognized that better institutional quality of host countries encourages inflows of foreign direct investment (FDI) [1,2,3,4,5,6,7,8,9,10]. Extant research suggests that FDI affects the economic development, and government policies and the institutional quality of host countries [13,14,15,16,17,18,19]. Many recent studies have confirmed the positive effect of FDI, emanating mostly from developed countries, on the institutional quality of host countries. Scholars have found that MNCs from developed economies bring advanced management skills, sound business practices and industrial regulation policies, which promote institutional reform within the host countries [15,16,22]. The above findings are mixed in terms of the effects of FDI from developed countries on institutional quality of the host country.
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