Cultural and Institutional Distance of China’s Outward Foreign Direct Investment Toward the “Belt and Road” Countries

Abstract

As China continues to expand its outward foreign direct investment (OFDI) in countries along the “Belt and Road,” Chinese investment enterprises face an increasingly complex external environment, in which the influence of institutional distance and cultural distance has become more prominent. According to China’s OFDI panel data of 94 countries from 2003 to 2017, especially the data of 61 countries along with the “Belt and Road,” this study demonstrates that institutional distance, in general, promotes China’s OFDI to countries along the “Belt and Road,” whereas cultural distance inhibits OFDI. Moreover, the inhibition effect of cultural distance is significantly more substantial than the promotion effect of institutional distance, indicating that cultural distance is more important than institutional distance. Also, the promotion and inhibition effects are generally consistent with each other in different periods, but they are different due to the imbalance of economic development among the countries. In the subdivision dimension, institutional distance like Control of Corruption, Voice, and Accountability, and cultural distance like Masculinity vs. Femininity, Uncertainty Avoidance, and long-term vs. short-term Orientation exert more significant influences on China’s OFDI than the other subdivision dimensions. Therefore, China should pay special attention to the investment effect of specific dimensions of institutional distance and cultural distance in promoting the “Belt and Road,” and continuously optimize the investment layout along the “Belt and Road” in the future.

Keywords:

• “Belt and Road
• cultural distance
• institutional distance
• OFDI

Notes

1 The 2015 edition of the culture data published by Hofstede includes a total of 111 countries and regions. However, individual regional data, such as Africa East, French-speaking Belgium (Belgium French), and others were not suitable for this study. Taking into account the availability and completeness of OFDI and institutional distance data, a data sample of 94 countries was finally selected. Sixty-one countries are along the Belt and Road route (according to the list published by the China “Belt and Road” Network in early March 2019) (Identified). The full sample and the sample of countries along the “Belt and Road” route cover the main distribution areas of OFDI in China globally and along the route, respectively. Thus, the sample data are representative, and the problem of sample self-selection is better avoided.

2 Based on the 2017 GNI per capita as standard, low-income countries (less than or equal to 99,995) include: Uganda, Rwanda, Tanzania, Ethiopia, Zimbabwe; Low-middle-income countries (US$996–3895) include: Ukraine, Ghana, Indonesia, Kyrgyzstan, Egypt, Bangladesh, Nigeria, Pakistan, Moldova, Morocco, Georgia, Philippines, Zambia, Vietnam; middle-income countries (US$3896–12,055) include: Armenia, Iraq, Iran, Russia, Bulgaria, South Africa, Ecuador, Costa Rica, Turkey, Serbia, Dominican Republic, Venezuela, Herzegovina, Herzegovina, Belarus Albania, Macedonia, Malaysia, Montenegro; High-income countries (above US$12,055) include: Uruguay, Croatia, Hungary, Austria, Panama, Greece, Latvia, Czech Republic, Slovakia, Croatia, Slovenia, Slovenia, Slovenia, Slovenia, Singapore, Poland, Estonia, Trinidad and Tobago, Lithuania, Portugal, South Korea, Malta.