The Impact of International Inter-City Investment on Enterprises Performance: Pluralistic Interpretation of Geographical Death

Abstract

This paper aims to test the impact of inter-city investment on enterprises performance. By using a panel dataset of Chinese firms which have invested in 43 countries and regions over the of 2003–2009 and gravity model, we find that institutional distance is favorable to Chinas outward direct investment, which implies that the Chinese multinationals dont seem willing to enter those countries that have similar institutions with their home country, in this sense, Chinese enterprises outward direct investment can be interpreted as being driven by the motivation of institutional escape. Technology distance displays an Inversed-U shape which suggests some technical distance is the premise for ODI and may reflect the fact of simultaneous existence of both the technology utilization ODI and the technology-seeking ODI of China. Geographical distance has no significant impact on Chinas outward direct investment which supports the proposition of death of distance. These findings point to the importance of going beyond firm boundary to consider various distances between home and host countries in making investment decisions, which not only overcome the defects of the existing studies, but also propose new theoretical explanations for the phenomenon that Chinese enterprises are still capable of ODI even when the ownership advantages are missing. According to the results of this paper, Chinese enterprises should choose to invest in the countries with large institutional distance, small economic and medium technical distance from the home country, and, at the same time, they should not bother geographical distance too much.