Foreign Direct Investment under Weak Rule of Law : Theory and Evidence from China
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This paper develops a self-enforcing
contract model to show that better economic fundamentals can
help when there is weak rule of law -- but with order -- to
attract foreign direct investment, whereas lowering taxes
does not necessarily help. Using a cross-region Chinese
dataset, the analysis finds evidence consistent with the
theoretical analysis. Regional variations in tax rates and
the perceived quality of formal contracting institutions are
not correlated with regional inflows of foreign direct
investment, but leadership characteristics are. Most
conventional economic factors have the predicted effects on
foreign direct investment. The finding that foreign direct
investment is lower in locations where domestic private
firms have better access to finance and where the air
quality is poor is new to the literature.
Palabras clave
ACCESS TO BANK, ACCESS TO BANK LOANS, ACCESS TO CAPITAL, ACCESS TO FINANCE, ACCESS TO LOAN, ACCESS TO LOANS, ACCOUNTING, AFFILIATED ORGANIZATIONS, AGRICULTURAL PRODUCTS, BIASES, BUSINESS ENVIRONMENT, CAPITAL FLOW, CAPITAL FLOWS, COMMERCIAL DISPUTE, COMMERCIAL DISPUTES, CONTRACT ENFORCEMENT, CONTRACTUAL RIGHTS, CORPORATE GOVERNANCE, CORRUPTION, DEPENDENT, DEVELOPING COUNTRIES, DEVELOPING ECONOMIES, DIMINISHING RETURNS, DOMESTIC CAPITAL, DUMMY VARIABLE, ECONOMIC ACTIVITY, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC PERFORMANCE, EMPLOYEE, ENVIRONMENTAL PROTECTION, EQUIPMENT, EXPENDITURE, EXPENDITURES, FINANCIAL DEVELOPMENT, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIATION, FINANCIAL MARKET, FINANCIAL STATEMENTS, FOREIGN CAPITAL, FOREIGN DIRECT INVESTMENT, FOREIGN EQUITY, FOREIGN FIRM, FOREIGN FIRMS, FOREIGN INVESTMENT, FOREIGN INVESTOR, FOREIGN INVESTORS, FOREIGN OWNERSHIP, FOREIGN SHARE, GLOBAL CAPITAL, GLOBAL CAPITAL FLOWS, GOVERNMENT POLICIES, GROWTH RATE, GROWTH RATES, HOST GOVERNMENT, IMPLICIT CONTRACT, IMPLICIT CONTRACTS, INCOME, INCOME LEVEL, INEQUALITIES, INSTITUTIONAL CONSTRAINTS, INSTITUTIONAL ENVIRONMENT, INTERNATIONAL BANK, INTERNATIONAL BUSINESS, INTERNATIONAL ECONOMICS, INTERNATIONAL INVESTORS, INVESTMENT CLIMATE, INVESTMENT RETURN, LABOR FORCE, LACK OF PROPERTY, LEGAL ENVIRONMENT, LEGAL PROTECTION, LEGAL SYSTEM, LOCAL FINANCIAL MARKET, LOCAL GOVERNMENT, LOCAL GOVERNMENTS, LOCAL MARKET, MANUFACTURING INDUSTRIES, MARKET INTEGRATION, MARKET SIZE, MATURITY, OUTPUT, POLITICAL ECONOMY, POLITICAL POWER, PRIVATE INVESTORS, PRIVATE SECTOR DEVELOPMENT, PROPERTY RIGHTS, PROPERTY RIGHTS PROTECTION, RATE OF RETURN, REPUTATION, REPUTATIONS, RETURN, RETURN ON INVESTMENT, RETURNS, RULE OF LAW, SALES REVENUE, SHARE OWNERSHIP, TAX, TAX BURDEN, TAX BURDENS, TAX CONCESSIONS, TAX POLICIES, TAX RATE, TAX RATES, TAX RETURN, TAX REVENUE, TRACK RECORD, TRANSACTION, TRANSACTION COSTS, TURNOVER, VOLATILITY, WORLD ECONOMY