Study of Nonlinear Effects of Institutional Quality and Financial Development on Transnational Capital

By using threshold regression, data of 64 countries from year of 2005 to 2012 are used to analyze FDI net outflows and others of 28 countries from 2005 to 2012 are used to analyze financial capital net inflows. The thesis is concluded as follow: 1. Institutional quality has positive effects on FDI net outflows and financial capital net inflows. 2. Only under the condition of that institutional quality surpasses the threshold will the financial system works. 3. The financial development has threshold effects on FDI and financial capital flows, and has nonlinear effects on them through capital market concerning institutional quality, when institutional quality surpassing the threshold, the effects of the scale of capital market on financial capital net inflows become significant. Capital account liberalization of China should keep the pace with the development of institutional quality and capital market.