Modelling Efficiency Effects in a True Fixed Effects Stochastic Frontier

Paul, Satya; Shankar, Sriram

doi:10.2139/ssrn.3193286

Cited by 1 publication

(1 citation statement)

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“…The study is motivated by the theoretical idea that no economic production can surpass the ideal “frontier”, and deviations from this extreme view represent individual inefficiencies (Belotti et al , 2013). The main advantage of this model over conventional regressions hinges on the unobservable resistances that affect OFDI and are captured as an inefficiency instead of an unobservable disturbance term (Albert et al , 2010; Fan et al , 2016; Paul and Shankar, 2018). Efficiency is the rate of observed value to potential value.…”

Section: Empirical Methodologymentioning

confidence: 99%

Institutional distance and Chinese investment efficiency in Africa: a stochastic frontier analysis

Mohamued

Khan

Meyer

et al. 2022

IJOEM

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PurposeThis study aims to analyse the efficiency effects of institutional distance on Chinese outward foreign direct investment (FDI) in Africa.Design/methodology/approachThe study utilised the true fixed-effect stochastic frontier analysis (SFA) model. Data from 2003 to 2016 (14 years) were acquired from 42 targeted African countries, which are included in the analysis.FindingsThe results reveal that FDI flow efficiency can be maximised with a high institutional distance between China and African countries. Contrariwise, comparable institutional distance, measured by the rule of law, regulatory quality and government effectiveness between the host and home countries, reflected a significant positive impact for Chinese outward foreign direct investment (OFDIs), indicating Chinese MNEs can invest directly in a country with comparable institutional characteristics.Originality/valueThere have been limited exceptional studies that assessed the effect of institutional distance between emerging countries. However, none of these studies investigated the effect of institutional distance between China and Africa at a national level. Using the advantage of the SFA model, this study assesses the efficiency effects of institutional distance between the host and home country.

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