New international flight routes and MNCs' investment

Abstract

Using global corporate investment data from 2007 to 2022, this study employs a multi-period difference-in-differences methodology to investigate the impact of opening new international passenger flight routes on FDI. The empirical results are as follows: The launch of new international passenger air routes has significantly promotes multinational corporations'(MNCs') investment in China by shortening cross-border travel time. Results from heterogeneity analysis suggest that investment scale expansion in China is primarily concentrated among large-scale MNCs and capital-intensive MNCs. Mechanism analysis reveals that, alleviating information friction, enhancing financing capability, and reducing cultural barriers are crucial channels. Further analysis indicates that the launch of new international passenger flight routes substantially enhances China's market appeal to MNCs and raises MNCs' investment returns. Our research findings not only enrich the theoretical literature on the economic implications of “home bias” effect in international investment, but also offer empirical support for achieving the United Nations World Tourism Organization's sustainable development goal of “Tourism for Economic Growth”.