The Effect of Intellectual Property Rights Protection in Host Economies on The Sustainable Development of China’s Outward Foreign Direct Investment—Evidence from a Cross-Country Sample

Abstract

Intellectual property rights protection (IPRP) has caused great concern in China, especially since the introduction of the Belt and Road (B&R) initiative. The Chinese government has increased investments to the countries along the B&R, most of which are developing countries with high investment risks. Using the panel data of China’s outward foreign direct investment (OFDI) in 121 countries from 2003 to 2017, the sustainable relationships between the IPRP of host countries and China’s OFDI has been analyzed. The results of this paper show that, from the worldwide perspective, the stronger the IPRP of the host country, the greater attraction to China’s OFDI. While the IPRP of the countries along the B&R has a nonlinear U-shaped effect on China’s OFDI, which is related to the complex environments of the countries. When the IPRP of the B&R countries is within a certain range, China’s OFDI is biased toward a country with lower IPRP, and when the IPRP exceeds a certain range, China’s OFDI is biased toward a country with higher IPRP. Moreover, the market size, natural resources endowment and political environment of the host country are influential upon China’s OFDI as well. What deserves our attention is that China’s OFDI is more biased towards countries with poor political conditions, which can be related to the enterprise type and that most of the large multinational enterprises in China are state-controlled, resulting in investment decisions largely reflected by the national political goals rather than simple market targets.