Belt and Road Initiative and OFDI from China: the paradox of home country institutional environment between state and local governments

Abstract

Purpose This study aims to explore the effect of the home country institutional environment on firms’ outward foreign direct investment (OFDI) and how it is affected by institutional environment differences across home country subregions. Drawing on transaction cost theory, this paper examined the relationship between the Belt and Road Initiative (BRI) and Chinese firms’ OFDI, as well as the moderating roles of local government officials’ career horizons and state ownership. Design/methodology/approach A sample of 5,018 Chinese firm-year observations with foreign investment activities was used over 11 years to estimate a panel-feasible generalized least square regression model. Findings The results show that the BRI improves Chinese firms’ OFDI in countries along the BRI route. Furthermore, this positive relationship is weaker for firms where provincial officials have longer career horizons and is stronger for state-owned enterprises (SOEs) compared to non-SOEs. Originality/value The findings confirm the positive effect of home country institutional environment on firms’ OFDI. Furthermore, the multiple government perspective offers new insight into the effects of the home country’s institutional environment on OFDI.