Economic Governance Quality and Chinese OFDI: Evidence from the “Belt and Road” Countries

Abstract

China’s foreign direct investment in 54 countries along the “Belt and Road” from year 2003 to year 2019 are adopted as sample data, and economic system indicators such as business freedom, currency freedom, trade freedom, investment freedom, and fiscal freedom are introduced as the proxy variable for the quality of host-country’s economic governance, to analyze the impact of different economic governance levels of countries along the route on China’s foreign direct investment. Due to the missing data and the non-random characteristics of China’s investment in sample countries, the Heckman two-step model is adopted to solve the issue of self-selection bias, and policy impact of the “Belt and Road” initiative is introduced to explore the quality of economic governance of the countries along the route on China’s foreign direct investment. The findings show that, 1) China is more inclined to invest in host countries with a large market, and its investment preference is market-seeking; 2) the host-country labor freedom and financial freedom have a positive impact on Chinese direct investment, while trade freedom and investment freedom negatively affects Chinese investment; 3) the implementation of the “Belt and Road” initiative has affected the mechanism of host-country’s economic governance on China’s foreign direct investment.