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This is a Quantitative Study study.

September 21, 2025Open Access

The Impact of Host Country Institutional Environment on China’s Outward Foreign Direct Investment: Evidence from the Belt and Road Economies

Key Points

China’s outward foreign direct investment tends toward poorer institutional environments, suggesting a risk-seeking behavior.
Investment patterns show significant regional differences, with Asian countries attracting more of China's foreign direct investment.
The institutional quality of host countries continues to play a crucial role in determining China's foreign direct investment decisions.
Analysis performed using the system GMM model based on data from 55 Belt and Road Initiative countries over 15 years.

Abstract

Direct investment cooperation between China and countries along the Belt and Road Initiative (BRI) has achieved initial success under the BRI framework. To examine how the institutional environments of these host countries influence China’s outward foreign direct investment (OFDI), this paper conducts an empirical analysis using the system GMM model, based on data from China’s OFDI in 55 BRI countries from 2005 to 2020. The findings reveal three key insights: First, China’s OFDI in the BRI region exhibits a distinct"risk-seeking"tendency toward institutional quality—that is, poorer host-country institutional environments are associated with higher Chinese investment, alongside a preference for geographically proximate destinations. Second, institutional preferences vary significantly across regions, with Asian countries attracting relatively more investment. Third, the significance of host-country institutional environments on China’s OFDI has not diminished since the official launch of the BRI in 2013.

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