Transformations  in
Business & Economics

How Does Institutional Distance Affect Binary Margins of Investment? An empirical study based on China’s OFDI to countries along the "Belt and Road”
Xu Tao, Shan Yu, Jianyu Qiu

ABSTRACT: The article empirically investigates the binary marginal effects of formal and informal institutional distance on investment based on micro data on Chinese firms’ investment in large-scale projects in countries along the "Belt and Road” from 2005-2019, and conducts a heterogeneous examination in terms of time, level of economic development and industry. The study finds that formal institutional distance significantly promotes the increase of the investment intensive margin, and this promoting effect is only obvious in the late stage of the financial crisis and mainly reflected in the sample of low-middle-income countries. As for the informal institutional distance, it reduces the occurrence of the investment expansion margin, and this inhibitory effect is long-term and concentrated in high-middle-income countries. At the same time, the investment binary marginal in the energy sector and the transportation sector are more strongly affected structure by institutional distance.

KEYWORDS:  formal institutional distance, informal institutional distance, outward foreign direct investment, binary margins, the "Belt and Road”.

JEL classification:  M38.