law and ofdi
Description
Local judicial protectionism has long constrained the efficient allocation of market resources, yet the improvement of the local judicial environment is expected to reverse this situation. Accordingly, this paper examines the impact of local judicial environmental improvement on firms’ outward foreign direct investment (OFDI). Employing the establishment of circuit courts as a quasi-natural experiment, we analyze the effect of improvement in the local judicial environment on corporate OFDI. Our findings are: First, benchmark regression results indicate that the improvement of the local judicial environment significantly enhances the scale of corporate OFDI, and this result remains robust after a series of robustness checks, including parallel trend tests and instrumental variable approaches; Second, mechanism analysis reveals that local judicial environment improvement promotes OFDI scale through enhancing total factor productivity (TFP) and alleviating financial constraints; And third, heterogeneity analysis shows that the positive effect of local judicial environment on OFDI scale varies across firms with different ownership types, industries with different factor intensities, and regions with different levels of legal environment.