Institutional difference and outward FDI: evidence from China

This paper investigates the impact of institutional difference on China's outward foreign direct investment (OFDI) through a gravity model. Our estimations are based on a large panel of 150 countries over the period 2003-2015. The results show that the institutional differences of government effectiveness and control of corruption between China and a host country have a statistically significant negative effect on China's OFDI. In addition, our empirical evidence suggests that the 'One Belt, One Road' policy does not have the expected positive effect on China's OFDI. Consistent results are obtained from a set of robustness tests. Our findings provide a reasonable guideline for countries aiming to attract Chinese OFDI or seeking factors to boost it.