Host country institutions and firm-level R&D influences: An analysis of European Union FDI in China

Huifen Cai, Agyenim Boateng, Y. Guney

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

The paper investigates the effects of institutions and their interaction with firms’ research & development (R&D) levels on foreign direct investment (FDI) inflows in China based on a sample of 680 European Union (EU) firms over the period of 1998–2008. Employing panel data estimation approaches and further augmented with the cross-validation technique, our results indicate that EU FDI in China is influenced by the host country’s institutions, rendering support to the institutional theory. Our analysis indicates that the rule of law, institutional reforms and the interaction between institutional reforms and R&D have significant effects on FDI inflows in China. Further analysis suggests that the coefficient for the interaction between the rule of law and R&D is positive and significant after World Trade Organisation (WTO) entry implying that the effects of reforms following the WTO entry much outweigh the impact of rule of law in EU firms’ decisions to invest in China. We also find evidence that EU firms tend to adjust their FDI levels in China in an attempt to reach the desired investment level.
Original languageEnglish
Pages (from-to)311-326
Number of pages16
JournalResearch in International Business and Finance
Volume47
Early online date15 Aug 2018
DOIs
Publication statusPublished - Jan 2019
Externally publishedYes

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