Host Country Institutions and Firm-Level R&D Influences: An Analysis of European Union FDI in China

Research in International Business and Finance, 2018

39 Pages Posted: 24 Sep 2018

See all articles by Huifen Cai

Huifen Cai

Middlesex University - Business School

Agyenim Boateng

Glasgow Caledonian University

Yilmaz Guney

University of Hull

Date Written: September 4, 2018

Abstract

The paper investigates the effects of institutions and their interaction with firms’ research & development (R&D) levels on foreign direct investment (FDI) inflows in China based on a sample of 680 European Union (EU) firms over the period of 1998 to 2008. Employing panel data estimation approaches and further augmented with the cross-validation technique, our results indicate that EU FDI in China is influenced by the host country’s institutions, rendering support to the institutional theory. Our analysis indicates that the rule of law, institutional reforms and the interaction between institutional reforms and R&D have significant effects on FDI inflows in China. Further analysis suggests that the coefficient for the interaction between the rule of law and R&D is positive and significant after World Trade Organisation (WTO) entry implying that the effects of reforms following the WTO entry much outweigh the impact of rule of law in EU firms’ decisions to invest in China. We also find evidence that EU firms tend to adjust their FDI levels in China in an attempt to reach the desired investment level.

Keywords: European Union Firms, China, Host Country Institutions, Firm-Level R&D

Suggested Citation

Cai, Huifen and Boateng, Agyenim and Guney, Yilmaz, Host Country Institutions and Firm-Level R&D Influences: An Analysis of European Union FDI in China (September 4, 2018). Research in International Business and Finance, 2018. Available at SSRN: https://ssrn.com/abstract=3243930

Huifen Cai

Middlesex University - Business School ( email )

The Burroughs
London, NW4 4BT
United Kingdom

Agyenim Boateng

Glasgow Caledonian University ( email )

Scotland
United Kingdom

Yilmaz Guney (Contact Author)

University of Hull ( email )

Hull, HU6 7RX
United Kingdom

HOME PAGE: http://https://www.hull.ac.uk/faculties/fblp/hubs.aspx

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