Foreign Aid, Institutional Quality and China's Outward Foreign Direct Investment

Abstract

Abstract: From the perspective of the locational choice for outward foreign direct investment, this paper makes use of the cross-country data from 2003 to 2014 and the dynamic panel models to analyze the effect of foreign aid and the system quality of recipient countries on China's outward foreign direct investment comprehensively. The findings show that, if the institutional factors are not taken into account, foreign aid is the“vanguard”of China's overseas investment. A 1% increase in aid to recipient countries can drive China's investment in recipient countries to grow by 5.8%. If the institutional factors are considered, the corruption control of the recipient countries will not affect the impact of aid on direct investment; the efficiency of government operations and the level of the legal system will positively affect the pioneering role of the aid. Seeing from the different types of aids, the corruption control, government running efficiency and the level of the legal system would positively influence the“pioneer role”of the economic infrastructure aids, while the promotion effect on social infrastructure aids is not significant. The positive effects of production sector aids on China's outward foreign direct investment are obvious under the influence of government running efficiency and the level of the legal system, while the aid effect in the non-production sector is only significantly positive under the influence of corruption control and government running efficiency.

Key words: foreign aid, outward foreign direct investment, institutional quality, dynamic panel

CLC Number:

F114

LI Fu-you, WANG Yun-liang. Foreign Aid, Institutional Quality and China's Outward Foreign Direct Investment[J]. Journal of Jiangxi University of Finance and Economics, 2020, 0(1): 25-35.

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