Foreign direct investment under a weak rule of law Theory and evidence from China

作者：Wang, Xiaozu^*; Xu, Lixin Colin; Zhu, Tian

来源：Economics of Transition, 2012, 20(3): 401-424.

DOI：10.1111/j.1468-0351.2012.00436.x

• F1
• F2
• P4
• P5
• O1
• O5
• FDI
• rule of law
• China
• institutions
• implicit contract
• leadership
• economic performance

We have developed a self-enforcing contract model to show that better economic fundamentals can help an area or a region under a weak rule of law but with order to attract foreign direct investments (FDIs), whereas lowering taxes does not necessarily help. Using a cross-region Chinese dataset, we find evidence consistent with our theoretical analysis. Regional variations in tax rates and the perceived quality of formal contracting institutions are not correlated with regional FDI inflows, but leadership characteristics are. Most conventional economic factors have the predicted effects on FDIs. The finding that FDI is lower in locations where domestic private firms have better access to finance and where the air quality is poor is also new to the literature.

• 出版日期2012
• 单位中欧国际工商学院; 复旦大学