Abstract
China’s foreign direct investment in 54 countries along the “Belt and Road” from year 2003 to year 2019 are adopted as sample data, and economic system indicators such as business freedom, currency freedom, trade freedom, investment freedom, and fiscal freedom are introduced as the proxy variable for the quality of host-country’s economic governance, to analyze the impact of different economic governance levels of countries along the route on China’s foreign direct investment. Due to the missing data and the non-random characteristics of China’s investment in sample countries, the Heckman two-step model is adopted to solve the issue of self-selection bias, and policy impact of the “Belt and Road” initiative is introduced to explore the quality of economic governance of the countries along the route on China’s foreign direct investment. The findings show that, 1) China is more inclined to invest in host countries with a large market, and its investment preference is market-seeking; 2) the host-country labor freedom and financial freedom have a positive impact on Chinese direct investment, while trade freedom and investment freedom negatively affects Chinese investment; 3) the implementation of the “Belt and Road” initiative has affected the mechanism of host-country’s economic governance on China’s foreign direct investment.
Highlights
China’s foreign direct investment in 54 countries along the “Belt and Road” from year 2003 to year 2019 are adopted as sample data, and economic system indicators such as business freedom, currency freedom, trade freedom, investment freedom, and fiscal freedom are introduced as the proxy variable for the quality of host-country’s economic governance, to analyze the impact of different economic governance levels of countries along the route on China’s foreign direct investment
The findings show that, 1) China is more inclined to invest in host countries with a large market, and its investment preference is market-seeking; 2) the host-country labor freedom and financial freedom have a positive impact on Chinese direct investment, while trade freedom and investment freedom negatively affects Chinese investment; 3) the implementation of the “Belt and Road” initiative has affected the mechanism of host-country’s economic governance on China’s foreign direct investment
We focused on the economic governance quality of countries along the “Belt and Road” and introduced economic governance indicators such as business freedom, currency freedom, trade freedom, investment freedom and fiscal freedom as core variables, and analyzed the impact of economic governance of countries along the route on Chinese investment which is committed to discussing the optimization of Chinese investment layout from the perspective of host-country economic governance, and promoting the implementation of the “Belt and Road” initiative
Summary
Since the “Belt and Road” initiative was put forward, governments at all levels in China have continuously improved various policies and promoted investment. Most studies have neglected host-county’s economic governance level, and there is still no theoretical basis that can directly reflect Chinese investment’s operating costs and the operability degree of economic regulation. This status quo brings certain limitations to the analysis of the impact of the institutional environment on China’s investment. There are problems in contract enforcement, business dispute resolution, property rights registration, bankruptcy resolution, import and export procedures, etc., which increase the probability of investment risks In this context, the cost of Chinese investment in the “Belt and Road” countries is increasing.
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