earticle

영어

The COVID-19 pandemic has brought great challenges to the global economy. Strict measures to control the pandemic adopted by the Chinese government have largely affected foreign direct investment (FDI) inflows in China. However, current research has ignored internal differences within China, especially differences in the level of institutional development. It has been widely recognized that the influence of the institutional environment on business activities of firms is important and the level of institutional development is directly related to the performance of firms. Thus, the objective of this study was to explore how the COVID-19 pandemic affected FDI inflows at the subnational level and whether institutional factors played a role in this process. We compiled a monthly data set on COVID-19 and FDI inflows in China at the provincial level from February 2020 to January 2022. The random effect model was adopted after conducting the Hausman test and then we performed the regression analysis in two steps. First, we used the pandemic data set to analyze impact of the pandemic on FDI inflows. Second, we classified 31 provinces into three groups according to the level of marketization. And then we tested how the pandemic affected the FDI inflows in three groups differently to explore the impact of institutional factors on foreign investor decision making in the context of the COVID-19 pandemic. Results showed that cumulative cases in a province did not have a significant impact on FDI inflows. However, current active cases and new confirmed cases in the province negatively affected FDI inflows, indicating that overseas investors were more concerned about the current situation of COVID-19 in the province. Analysis results after dividing all provinces into three groups according to marketization index showed that COVID-19 had no significant impact on FDI inflows in provinces with low levels of institutional development (Group L), but had significant negative effects in provinces with medium and high levels of institutional development (Group M and Group H). Furthermore, the coefficient of COVID-19 in Group H was much lower than that in Group M, indicating that a high level of institutional development could reduce the negative impact of COVID-19. This study provides a deeper understanding of the preferences and characteristics of FDI in China by exploring impact patterns of COVID-19 on FDI in different regions with different levels of institutional development.