TY - JOUR AU - Fan,Joseph P.H. AU - Morck,Randall AU - Xu,Lixin Colin AU - Yeung,Bernard TI - Institutions and Foreign Investment: China versus the World JF - National Bureau of Economic Research Working Paper Series VL - No. 13435 PY - 2007 Y2 - September 2007 UR - http://www.nber.org/papers/w13435 L1 - http://www.nber.org/papers/w13435.pdf N1 - Author contact info: Joseph Fan School of Accountancy Chinese University of Hong Kong Shatin, N.T. Hong Kong SAR Tel: (852) 2609 7839 Fax: (852) 2603 5114 E-Mail: pjfan@cuhk.edu.hk Randall Morck Faculty of Business University of Alberta Edmonton, AB T6G 2R6 CANADA Tel: 780/492-5683 Fax: 780/492-3325 E-Mail: randall.morck@ualberta.ca Lixin Colin Xu MC 3-420, World Bank 1818 H Street, N.W. Washington, DC 20433 E-Mail: lxu1@worldbank.org Bernard Yeung National University of Singapore Mochtar Riady Building 15 Kent Ridge Drive BIZ 1, Level 6, #6-19 Singapore 119245 Tel: +65 6516 3075 Fax: +65 6779 1365 E-Mail: bizdean@nus.edu.sg AB - Weak institutions ought to deter foreign direction investment (FDI), and mass media stories highlight China's institutional deficiencies, yet China is now one of the world's largest FDI destinations. This incongruity characterizes China's paradoxical growth. Cross-country regressions show that China's FDI inflow is not exceptionally large, given the quality of its institutions and its economic track record. Institutions clearly determine a country's allure as an FDI destination, but standard measures of institutional quality can be problematic for countries undergoing rapid institutional development, and can usefully be augmented by economic track record measures. Deng Xiaoping's 1993 "southern tour" heralded sweeping reforms, and this regime shift is insufficiently reflected in commonly used measures of institutional quality. China's FDI inflow surge after these reforms resembles similar post-regime shift surges in the East Bloc, and so is also unexceptional. Recent arguments that China's FDI inflow is inefficiently large because weak institutions deter domestic investment while special initiatives attract FDI are thus either unsupported or not unique to China. ER -