Stepping-stone or stumbling block: impact of the economic system on China’s OFDI

Abstract

With the proposal of the One Belt, One Road initiative, China’s OFDI has grown rapidly, with institutions playing key roles. This study uses residualization and threshold regression methods to analyse the 2003–2019 panel data of 31 provinces and cities in China to study the impact of property rights protection, market operation, and financing systems on China’s foreign outward direct investment (OFDI). Overall, the results show that only the market operation system is key in promoting OFDI. Regarding regional heterogeneity, the property rights protection system has a solely positive incentive effect on OFDI in the central region. Moreover, the market operation system only plays a positive role in promoting OFDI in the eastern developed and central regions. The financing system has a threshold effect, which has significant negative and positive impacts on OFDI in the eastern and central regions, respectively. Conversely, the financing system’s impact changes from significant to insignificant in the western region before and after the threshold value. This study provides a theoretical reference for economic system reform in the process of implementing the strategy of “going out” in various regions.