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Institutional fragility and outward foreign direct investment from China

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Abstract

We develop the concept of institutional fragility to investigate the outward foreign direct investment (OFDI) behavior of firms from emerging economies. When different dimensions of institutions are not progressing at the same pace, internal friction and conflict arise during institutional development. Such fragility could push a firm to escape its home country as a strategic response. Using a sample of 578,360 Chinese firm-year observations over a 10-year period, we find that institutional fragility at the provincial level is associated with increased OFDI decision. This relationship is weaker when firms have high productivity or have been controlled by state with high ownership, stronger when firms have a high level of export network. Overall, our institutional fragility perspective extends and enriches the institution-based view and offers new insights into OFDI behavior.

Résumé

Nous développons le concept de fragilité institutionnelle pour étudier le comportement d’investissement direct étranger sortant (IDES) des entreprises de pays émergents. Lorsque différentes dimensions institutionnelles ne progressent pas au même rythme, des conflits et des frictions internes surviennent au cours du développement institutionnel. En réponse stratégique, cette fragilité pourrait inciter une entreprise à quitter son pays d’origine. Utilisant un échantillon de 578 360 observations d’entreprises chinoises sur une période de 10 ans, nous constatons que la fragilité institutionnelle au niveau régional est liée à l’augmentation des décisions d’IDES. Cette relation est plus faible lorsque les entreprises ont une productivité élevée ou ont été contrôlées par l’Etat avec un fort degré de propriété, elle est plus forte lorsque les entreprises ont un réseau d’exportation très développé. Dans l’ensemble, notre point de vue sur la fragilité institutionnelle élargit et enrichit la perspective institutionnelle et offre de nouveaux éclairages sur le comportement relatif aux IDES.

Resumen

Desarrollamos el concepto de fragilidad institucional para investigar el comportamiento de la salida de inversión extranjera directa (SIED) de empresas de economías emergentes. Cuando diferentes dimensiones de instituciones no están progresando al mismo ritmo, fricción interna y conflicto surge durante el desarrollo institucional. Esta fragilidad pudiera presionar a una empresa a escapar de su país de origen como una respuesta estratégica. Usando una muestra de 578.360 observaciones anuales de empresas chinas en un período de 10 años, encontramos que la fragilidad institucional a nivel de provincia se asocia a un aumento de la decisión de la SIED. Esta relación es más débil cuando las empresas tienen alta productividad o han sido controladas por el estado con alta propiedad, más fuerte con las empresas tienen una red de exportaciones de alto nivel. En general, nuestra perspectiva de fragilidad institucional amplia y enriquece el enfoque vasado en recursos y ofrece nuevos aportes en el comportamiento de la SIED.

Resumo

Desenvolvemos o conceito de fragilidade institucional para investigar o comportamento do investimento direto externo para o exterior (OFDI) de empresas de economias emergentes. Quando as diferentes dimensões das instituições não progridem no mesmo ritmo, atrito interno e conflitos surgem durante o desenvolvimento institucional. Tal fragilidade poderia impulsionar uma empresa para escapar de seu país de origem como uma resposta estratégica. Utilizando uma amostra de 578.360 observações firma-ano chinesas durante um período de 10 anos, verificamos que a fragilidade institucional a nível provincial está associada a uma maior decisão de OFDI. Essa relação é mais fraca quando as empresas têm alta produtividade ou o Estado tem um maior controle sobre a sua propriedade, e mais forte quando as empresas possuem uma rede de exportação de alto nível. Em geral, a nossa perspectiva de fragilidade institucional estende e enriquece a visão baseada em instituições e oferece novos insights sobre o comportamento do OFDI.

概要

根据新兴经济体公司的对外直接投资(OFDI)行为, 我们提出制度脆弱性的概念。当制度的不同维度没有以相同的速度发展时, 制度发展中就会出现内部摩擦和冲突。这种制度脆弱性会促使公司将从母国逃避作为一种战略反应。我们 在578360个中国公司-年度10年间的观察 样本中, 发现省级的制度脆弱性会增加OFDI决策。当公司具有高生产率或有高比例的国有企业所有权时,这种关系变弱; 当企业具有高水平的出口网络时,这种关系变 强。总体而言, 我们制度脆弱性的观点扩展并丰富了制度基础观, 并提供了对OFDI行为的新见解。

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Acknowledgments

We thank Mariko Sakakibara and three reviewers for editorial guidance, Yi Lu from National University of Singapore and Xian Chen from Shanghai Jiaotong University for helpful comments. This research was supported in part by the Bloch School Kemper Summer Research Fund at University of Missouri–Kansas City, the summer research fund from Baruch College–City University of New York, the Weissman Center International Business Research Grant, National Planning Office of Philosophy and Social Science (NPOPSS) Grant (No. ZX20150074), and funds from Collaborative Innovation Center for China Economy (CICCE). All views are those of the authors and not necessarily those of the sponsors.

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Authors and Affiliations

  1. Department of Management, Zicklin School of Business, CUNY-Baruch, New York, NY, USA

    Weilei (Stone) Shi

  2. Regnier Institute for Entrepreneurship and Innovation, Henry W. Bloch School of Management, University of Missouri – Kansas City, Kansas City, MO, USA

    Sunny Li Sun

  3. Center for Transnationals’ Studies, School of Economics, Nankai University, Tianjin, China

    Daying Yan

  4. Department of Management, Feliciano School of Business, Montclair State University, Montclair, NJ, USA

    Zhu Zhu

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  1. Weilei (Stone) Shi
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  2. Sunny Li Sun
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  3. Daying Yan
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  4. Zhu Zhu
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Correspondence to Daying Yan.

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Accepted by Mariko Sakakibara, Area Editor, on 5 October 2016. This article has been with the authors for four revisions.

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Shi, W., Sun, S.L., Yan, D. et al. Institutional fragility and outward foreign direct investment from China. J Int Bus Stud 48, 452–476 (2017). https://doi.org/10.1057/s41267-016-0050-z

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