Institutions, Culture Distance, and FDI Location Choice: Evidence from China
30 Pages Posted: 30 Oct 2009
Date Written: July 2009
Using an extensive data set on foreign invested enterprises (FIEs) in the Chinese mainland, we compare the sensitivities of the location choice of foreign direct investment (FDI) from six major source countries/areas (Hong Kong, Taiwan, US, EU, Japan and Korea) toward the variation in the strength of economic institutions across China's regions. It is found that FIEs from the source countries/areas that are culturally more remote from China often exhibit a stronger aversion to regions with weaker economic institutions. Moreover, this pattern is often more salient when FDI takes the form of fully-owned enterprises (FOEs) than when it takes the form of joint ventures (JVs).
Keywords: Economic Institutions, Cultural Distance, FDI Location Choice
JEL Classification: F21, F23, G15, P16
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