Assessing the Influence of Institutional Quality on Chinese OFDI Location Selection: An Analysis of African and Asian Countries

Abstract

This study explores the role of institutional quality as an important factor in facilitating Chinese foreign direct investment (OFDI) into African and Asian countries. We analyze the different market- and resource-seeking incentives of Chinese firms and measure the impact of institutions on their investment decisions. Our data set covers 72 countries over eight years, which we analyze using the Generalized Method of Moments. Our results show that institutional quality, particularly in terms of government effectiveness, regulatory quality, and the rule of law, plays a significant role in both attracting and deterring market-seeking investments while having a less pronounced effect on resource-seeking investments. Our findings are important for understanding the dynamics of Chinese OFDI in Africa and Asia and its implications for long-term economic growth.