The role of government policies in explaining the internationalization of Chinese firms

Abstract

Although prior research has recognized the prominent role of governments in stimulating outward foreign direct investment (OFDI) from emerging countries, understanding of the mechanisms through which and the extent to which government policies influence internationalization at the firm level remains rather limited. Drawing from institutional economics and the resource-based view, we examine how OFDI-specific government policies in China influence the decision of Chinese firms to invest abroad. Using a comprehensive dataset of 407,765 firms between 2004 and 2013, our framework indicates that the effectiveness of government policies in stimulating OFDI differs significantly across firms depending on how efficient firms are and their ownership. This study helps us understand the mechanisms through which country-specific institutions in the form of government policies influence foreign investment decisions at the firm level, and how certain contingencies change these effects.