China’s ODI Motivations, Political Risk, Institutional Distance and Location Choice

Abstract

Utilizing an outward foreign direct investment (ODI) data sample of 48 countries and districts from the year 2003 to 2010, and based on institutional distance theory, a resource-based view, an institutional-based view and political risk management theory, this paper applies multiple regression equations to explore the linkages between China’s ODI motivations, political risk, institutional distance and location choice. We obtain the following conclusions: 1) there are three different motivations affecting China’s ODI location choice, namely, resource-seeking, strategic asset-seeking and market-seeking motivations; 2) generally, China’s multinational enterprises are inclined to invest ODI in countries with high political risk and short institutional distance; and 3) multinational enterprises with different ODI motivations have diverse location choices. For resource-seeking foreign investment, Chinese multinational enterprises tend to invest in countries with high political risk and short institutional distance. For strategic asset-seeking foreign investment, Chinese multinational enterprises tend to avoid countries with high political risk and short institutional distance. For market-seeking foreign investment, multinational enterprises of China tend to avoid countries with high political risk and short institutional distance.