Does China’s Outward Direct Investment Improve the Institutional Quality of the Belt and Road Countries?

Abstract

This article investigates the effects of China’s outward direct investment (ODI) on the institutional quality of the Belt and Road (B&R) countries. Based on a panel data set of 63 B&R countries during the period 2003 to 2016, we find that China’s ODI improves the institutional quality of B&R countries not only in the short run but also in the long run. Further, although China’s ODI exerts no differential impacts on host country institutional dimensions of “control of corruption,” “government effectiveness,” and “political stability” in countries with different natural resource endowments, it improves their institutional dimensions of “regulatory quality” and “rule of law,” implying that China’s ODI may help the host B&R countries minimize the “resource curse”. As one of the most important strategies for China’s opening-up development in the current era, the B&R initiative serves as means to promote sustainable development of B&R countries. The article therefore contributes to existing scholarship on the institutional effects of China’s ODI and sheds light on the mechanisms that drive sustainable development.

China's quest for economic dominance and energy consumption: Can Asian economies provide natural resources for the success of One Belt One Road?

“…Second, we contribute by examining location choice and impact of institutional distance between host and home economies and how it affects location choice of FDI firms (Pan et al, 2020). Our findings suggest that smaller institutional distance makes resource endowment more feasible option for Chinese firms.…”

“…Though as discussed earlier, for emerging market investors, the association between FDI and economic freedom maybe different than investing firms from developed economies as the way regulatory institutions operate differently for home countries of investors from emerging markets and their competitors from western hemisphere (Epstein, 2019). Although regulatory institutions have strong impact in developed economies, such institutions in developing economies may not be as effective (Pan et al, 2020). And because firms in developing economies have prior experience in managing these situations, therefore, it enables them to develop nonmarket resources so that they can manage the deficiencies of poorly run regulatory institutions (Iammarino, 2018).…”

“…Furthermore, we also contribute in FDI literature as MNEs are affected by regulatory environment not only by where they invest but also subjected to legal changes in country of their origin (Pan, Wei, Muralidharan, Liao, & Andreosso‐O'Callaghan, 2020). It is even more true for investors seeking natural resources as they are often brought to public attention and are subjected to intense host and home governmental regulations (Shapiro, Vecino, & Li, 2018).…”

China–Pakistan Economic Corridor: Macro Environmental Factors and Security Challenges

“…Contrarily, internal challenges involve the objections by local political parties, provincial concerns, aggression of separatists, and terrorism (Ashraf et al, 2017). Moreover, political instability, weak governance, ethnopolitical issues, administrative and institutional concerns, and civil-military complexities became an added baggage in CPEC construction and execution (Hussain, 2016; Javed, 2018; Pan et al, 2020; Zhang et al, 2018).…”

“…But it is important to conceive that every international project, like BRI, inevitably develops an impact driven relationship with PEST domains in the host culture (Huang, 2019; Pan et al, 2020). Relatedly, CPEC and Pakistan’s PEST domains are not only deeply interconnected but also have potential influence of positive and negative nature to change the position of each other (Zhang et al, 2018).…”