The Role of Intergovernmental Relations in Shaping Outward foreign Direct Investment from China

Abstract

Prior research on outward foreign direct investment (OFDI) has emphasized the role of factors such as market size and institutional quality in enhancing investment to a destination. However, the literature has not adequately considered how intergovernmental relations influence the decision to invest in a country. In this article, we explore the role of intergovernmental relations in Chinese OFDI decisions in the context of the “Belt and Road Initiative (BRI)”. We use emerging research on institutional and global political economy theories to address this prominent issue by examining Chinese OFDI to twelve countries. Based upon our qualitative analysis, we find that better intergovernmental relations reduce the negative impact resulting from competing institutional logics, enhance agglomeration economies and increase Chinese OFDI to different industries in a host country. This study contributes to the literature on the role of politics and non-market strategies in the internationalization of emerging market multinationals through amelioration of the institutional framework and global political economy perspectives.