Institutional Distance and Location Choice of China's OFDI in Belt and Road Countries: An Extended Gravity Model Approach
- 1 Nankai University
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Abstract
This study investigates how institutional distance shapes the location choices of China’s outward foreign direct investment (OFDI) in Belt and Road Initiative (BRI) partner countries. By extending the traditional gravity model with institutional variables, we analyze panel data from 63 BRI countries (2005–2022) to assess the nonlinear effects of formal and informal institutional gaps. Results indicate that moderate formal institutional distance (e.g., regulatory frameworks) positively influences OFDI, reflecting Chinese firms’ strategic arbitrage capabilities, while excessive informal institutional distance (e.g., cultural norms) acts as a deterrent. The model further reveals heterogeneous effects across state-owned enterprises (SOEs) and private firms: SOEs prioritize political proximity, whereas private firms leverage market-seeking motives in institutionally distant regions. These findings refine institutional theory in emerging economies and provide actionable insights for cross-border investment policy formulation.
Keywords
Institutional distance, China’s OFDI, Belt and Road Initiative, location choice, extended gravity model, political risk, emerging market multinationals
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Cite this article
Yang,L. (2025). Institutional Distance and Location Choice of China's OFDI in Belt and Road Countries: An Extended Gravity Model Approach. Journal of Economic and Managerial Dynamics,1(1),63-71.
Data availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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