Publication: Does "Good Government" Draw Foreign Capital? Explaining China's Exceptional Foreign Direct Investment Inflow
Date
2007-04
ISSN
Published
2007-04
Author(s)
Fan, Joseph P. H.
Morck, Randall
Xu, Lixin Colin
Yeung, Bernard
Abstract
China is now the world's largest
destination of foreign direct investment (FDI), despite
assessments highlighting its institutional deficiencies. But
this FDI inflow corresponds closely to predicted FDI flows
into China from a model that predicts FDI inflow based on
government quality indicators and controls and is estimated
across a sample of other weak-institution countries. The
only real discrepancy is that, if government quality is
measured by constraints on executive power, China receives
somewhat more FDI than the model predicts. This might
reflect an underestimation of the strength of these
constraints in China, a unique institutional setting for FDI
operations, FDI based on expected future institutional
improvements, or a unique Chinese model of development. The
authors conclude that Ockham's razor disfavors the
last. They also note that FDI may be elevated because
Chinese institutions protect foreign firms better than
domestic ones.
Citation
“Fan, Joseph P. H.; Morck, Randall; Xu, Lixin Colin; Yeung, Bernard. 2007. Does "Good Government" Draw Foreign Capital? Explaining China's Exceptional Foreign Direct Investment Inflow. Policy Research Working Paper; No. 4206. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/9bb30a27-3e2f-559d-a775-59d9e9f62730 License: CC BY 3.0 IGO.”
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