Belt and Road Initiative, Institution Quality and China’s Outward Foreign Direct Investments

This paper examines the direct and spatial impacts of the Belt and Road Initiative (BRI) on China’s OFDI globally and tests the moderating effect of the BRI, considering economic development, resources and institution quality for 186 countries from 2008 to 2019. The results imply that the BRI has significantly improved China’s OFDI globally, with a much larger effect in Asia and Africa. This study finds that institutional quality has no direct impact on OFDI, with the exception of the corruption index, where China’s OFDI seem to favour countries with higher corruption. However, when institutional quality is used as an interactive term that controls heterogeneity, the results suggest that institutional quality significantly strengthens the effects of the BRI on OFDI. In other words, in countries that engage with BRI, higher institutional quality positively improves the attractiveness of China’s OFDI. The results also reveal that the impact of the BRI is moderated by higher levels of economic development but not by resource-rich host countries. Interestingly, the increasing Chinese OFDI in BRI countries has a spatial suppression effect on OFDI in non-BRI countries, suggesting industrial agglomeration effects due to the BRI. The results are validated by various robustness tests, and this study concludes with policy implications.