It is generally believed that countries with a poor governance environment (eg, weak laws and rampant corruption) is not foreign direct investment (FDI), but this study suggests otherwise. With China as a case study, this article argues that the prevailing theory that a good governance environment reflects FDI is incomplete. When faced with a poor governance environment, investors choose direct investments through indirect (portfolio) investment because the former can be better protected … Read more »

It is generally believed that countries with a poor governance environment (eg, weak laws and rampant corruption) is not foreign direct investment (FDI), but this study suggests otherwise. With China as a case study, this article argues that the prevailing theory that a good governance environment reflects FDI is incomplete. When faced with a poor governance environment, investors choose direct investments through indirect (portfolio) investment because the former are better protected by private funds. In fact, China is attracting a large amount of FDI, because, rather than despite, the lack of a good governance environment. Offers strategies to better protect investments and looking to the pitfalls of rapid changes in the governance environment.
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Shaomin Li
Source: Business Horizons
6 pages.
Publication Date: Jul 15, in 2005. Prod #: BH125-PDF-ENG
Why a poor governance environment does not deter Foreign Direct Investment: The Case of China and its implications for investment protection HBR case solution