The Effects of Institutional Difference and Resource Seeking Intent on Location Choice of Chinese Outward FDI

Abstract

This study seeks to explain how differences in political risk and economic freedom between host and home countries interact with investing firms’ resource-seeking intent to influence the firms’ outward foreign direct investment (FDI) location choice. Using panel data covering Chinese outward FDI in 62 host countries during the period of 2003-2014, we performed panel data regression analysis. The results show that when firms’ resource seeking intention is high, the FDI location choice is negatively associated with the differences in political risk, but positively associated with the differences in economic freedom between China and the host countries. The results also show that there is a substituting effect between political risk and economic freedom in their interactions with resource-seeking intent to influence FDI location choice. The findings suggest that the Chinese firms’ outward FDI location choice is a result of the interplay and the fit between the firms’ external legitimacy in the host countries and the firms’ internal legitimacy within the multinational organization.