Does it matter where subnational regions are? Within-and between- subnational-cluster differences in institutional environments and foreign affiliate performance

Abstract

This study regards the subnational cluster, consisting of geographically proximate subnational regions, as an important within-country geographical boundary that affects foreign affiliate performance. By drawing insights from the theories of regionalization and institutional economics, we examine the between- and withinsubnational-cluster differences in the temporal and spatial dynamics of formal institutions, i.e., the institutional development and institutional imbalance, and their effects on foreign affiliate performance. Using a sample of foreign affiliates in 31 subnational states within 7 subnational clusters of China during 1998-2008, our study shows that foreign affiliate performance increases in the subnational cluster with better-developed or lessimbalanced formal institutions, and in the subnational state with relatively medium-developed or relatively lessimbalanced formal institutions within the subnational cluster. (For more information, please contact: Andy Chao Niu, University of Hong Kong, Hong Kong, SAR-PRC: superniuchao@gmail.com)