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
Cite this paper
Han, J. , Chu, X. and Li, K. (2014) China’s ODI Motivations, Political Risk, Institutional Distance and Location Choice. Theoretical Economics Letters
, 540-547. doi: 10.4236/tel.2014.47068
 Kelley, D., Coner, J.K. and Lyles, M.A. (2013) Chinese Foreign Direct Investment in the United States: Location Choice Determinants and Strategic Implications for the State of Indiana. Business Horizons, 56, 443.
 Wang, D.T. and Chen, W.Y. (2014) Foreign Direct Investment, Institutional Development, and Environmental Externalities: Evidence from China. Journal of Environmental Management, 135, 81.
 Wang, S., Tong, T.W., Chen, G.L. and Kim, H. (2009) Expatriate Utilization and Foreign Direct Investment Performance: The Mediating Role of Knowledge Transfer. Journal of Management, 35, 1181-1206.
 Yan, D.Y., Hong, J.J. and Ren, B. (2010) Determinants of outward Foreign Direct Investment by Chinese Enterprises: An Empirical Study from Institutional Perspective. Nankai Business Review International, 1, 237-253.
 Gaur, A.S. and Lu, J.W. (2007) Ownership Strategies and Survival of Foreign Subsidiaries: Impacts of Institutional Distance and Experience. Journal of Management, 33, 84-110.http://dx.doi.org/10.1177/0149206306295203
 Miller, S.R. and Eden, L. (2006) Local Density and Foreign Subsidiary Performance. Academy of Management Journal, 49, 341-355. http://dx.doi.org/10.5465/AMJ.2006.20786081
 Xu, D. and Shenkar, O. (2002) Institutional Distance and The Multinational Enterprise. Academy of Management Review, 27, 608-618.
 Xu, D., Pan, Y. and Beamish, P.W. (2004) The Effect of Regulative and Normative Distances on MNE Ownership and Expatriate Strategies. Management International Review, 44, 285-307.
 Glambosky, M.C., Gleason, K.C. and Madura, J. (2010) Political Risk and Purchases of Privatized State-Owned Enterprises. Financial Review, 45, 873-889. http://dx.doi.org/10.1111/j.1540-6288.2010.00275.x
 Rottig, D. (2008) Institutional Distance, Social Capital, and the Performance of Foreign Acquisitions in the United States. Florida Atlantic University, Florida.
 Ram, M. and Pietro, N. (2003) Political Tradition, Political Risk and Foreign Direct Investment in Italy. Management International Review, 43, 247-265.
 Schneider, F. and Frey, B.F. (1985) Economic and Political Determinants of Foreign Direct Investment. World Development, 13, 161-175. http://dx.doi.org/10.1016/0305-750X(85)90002-6
 Busse, M. and Hefeker, C. (2007) Political Risk, Institutions and Foreign Direct Investment. European Journal of Political Economy, 23, 397-415. http://dx.doi.org/10.1016/j.ejpoleco.2006.02.003
 Sami, U., Zeeshan, H.S. and Parvez, A. (2012) Impact of Exchange Rate Volatility on Foreign Direct Investment: A Case Study of Pakistan. Pakistan Economic and Social Review, 50, 121-138.
 Liargovas, P.G, and Skandalis, K.S. (2012) Foreign Direct Investment and Trade Openness: The Case of Developing Economies. Social Indicators Research, 106, 323-331. http://dx.doi.org/10.1007/s11205-011-9806-9
 Liu, S., Lu, J. and Tao, Z. (2008) Spillovers of FDI on Indigenous Manufacturing Firms: A Perspective of Geographic Distance. China Economic Quarterly, 8, 115-127
 Khrawish, H.A. (2014) The Effect of Economic and Financial Risks on Foreign Direct Investment in Jordan: Multivariate Analysis. International Business Research, 7, 124-136. http://dx.doi.org/10.5539/ibr.v7n5p124
 Makino, S., Lau, C. and Yeh, R.S. (2002) Asset-Exploitation versus Asset-Seeking: Implications for Location Choice of Foreign Direct Investment from Newly Industrialized Economies. Journal of International Business Studies, 33, 403-421. http://dx.doi.org/10.1057/palgrave.jibs.8491024
 Krifa-Schneider, H. and Matei, I. (2010) Business Climate, Political Risk and FDI in Developing Countries: Evidence from Panel Data. International Journal of Economics and Finance, 2, 54-65.
 Arslana, A. and Larimoa, J. (2011) Greenfield Investments or Acquisitions: Impacts of Institutional Distance on Establishment Mode Choice of Multinational Enterprises in Emerging Economies. Journal of Global Marketing, 24, 345-356. http://dx.doi.org/10.1080/08911762.2011.602323