Formal Institutional Distance and Innovation from OFDI: Evidence from China

Round 1

Reviewer 1 Report

Dear Authors,

 

Please find below and attached my comments and suggestions for your work.

Good luck!

 

Kind regards,

The Reviewer

Review Report Form

 

 

Journal: Sustainability (ISSN 2071-1050)

Manuscript ID: sustainability-1677570

Type: Article

Title: Institutional distance and innovation from OFDI

Authors: Jianing Shi *

Submission Date: 28 March 2022

 

Dear Authors,

 

I have carefully analyzed your article entitled “Institutional distance and innovation from OFDI”.

Congratulations for your work and valuable insights reflected in the content of the manuscript!

The structure of my Review Report Form takes into consideration two sections, namely: (A.) General overview of the article and strong points; and (B) Suggestions meant to improve your current manuscript.

 

(A.) General overview of the article and strong points:

 

• General background: Based on the authors’ notes, it should be brought to the attention the fact that the recent years have witnessed Outward Foreign Direct Investment (OFDI) becoming a dominant resource for emerging-market firms to enhance their innovation capability. Also, it should be pointed out that the institutional distance between home and host countries has challenged those firms to make adjustments according to the business environment of host countries and thus largely shapes the innovation benefits of OFDI.
• Aim of the study: While referring to the aim of this current scientific work, it ought to be highlighted that, for the purpose of investigating such an important but under-studied issue, the authors have chosen to specifically examine the impact of institutional distance on the improvement of innovation capabilities from OFDI secured by Chinese firms.
• General objective(s) of the study: The authors have theoretically disentangled the influence of institutional distance on R&D resource acquisition versus that on R&D resource utilization.
• Results of the study: In continuation to the aspects mentioned in the lines above, the authors have based their study on a sample of a Chinese firm that invested in 28 host countries from 2003 to 2017, and have found that institutional distance has a crucial negative effect on R&D resource acquisition, but has a significant threshold effect on R&D resource utilization (i.e., when the institutional distance is lower than the threshold, there would be a considerable negative effect of institutional distance on R&D resource utilization; whereas the effect would turn to less influential in case the institutional distance surpasses the threshold). Also, the authors’ findings highlight the importance of considering institutional distance when choosing destinations of OFDI, especially when the firm invests with the aim to strengthen innovation capability.

 

(B) Suggestions meant to improve your current manuscript:

 

Distinguished Authors I would kindly like to suggest the following aspects:

(1.) Closely analyzing the article, since there are some English language improvements and slight corrections that need to be taken care of. Thus, my recommendation would be to carefully proofread the entire manuscript. 

(2.) Also, I have closely analyzed the format of the article, in order to check whether it follows the guidelines which are specific to the publisher. Thus, I have noticed that the current form of your work needs improvement in this regard. So, my kind suggestion is to closely analyze again the guidelines belonging to the publisher, since the article should fit exactly the publisher’s guidelines. For instance, the keywords, the subsections, the references, currently do not fit the style and the requirements of the publisher. Also, it would be highly recommendable to include in the abstract of your study more highly relevant details that refer to the research objectives and the methodology used. This would definitely be considered a plus for your scientific work.    

(3.) In continuation, the suggestion would also be inserting in your article a few ideas concerning the correlation between effects of the Covid-19 pandemic and the Covid-19 global crisis, sustainability and sustainability assessment, while focusing on the institutional distance and innovation from the Outward Foreign Direct Investment (OFDI), since these are key focuses these days. In this context, I had the chance to read a few interesting scientific works recently, among which I would like to mention: (2021). Measuring Progress Towards the Sustainable Development Goals: Creativity, Intellectual Capital, and Innovation. In C. Popescu (Eds.), Handbook of Research on Novel Practices and Current Successes in Achieving the Sustainable Development Goals (pp. 125-136). IGI Global. https://doi.org/10.4018/978-1-7998-8426-2.ch006; European Commission. European Economic Forecast. Institutional Paper. No. 169. February 2022. European Economy. Luxembourg: Publications Office of the European Union, 2022 PDF ISBN 978-92-76-43938-7 ISSN 2443-8014 doi:10.2765/333044 KC-BC-22-0006-EN-N. https://ec.europa.eu/info/sites/default/files/economy-finance/ip169_en.pdf.

Dear Authors, congratulations once again for your work and valuable insights reflected in the content of the manuscript, and I hope my comments will be of value to you!

 

Kind regards,

The Reviewer

 

 

 

Comments for author File: Comments.pdf

Author Response

Response to Reviewer 1 Comments

 

Point 1:  Closely analyzing the article, since there are some English language improvements and slight corrections that need to be taken care of. Thus, my recommendation would be to carefully proofread the entire manuscript.  

 

Response 1: This paper was very carefully listened to the reviewers' comments. After carefully reading and revising the entire paper, the authors chose MDPI's English proof reading service for further revisions. After receiving the revised paper, the author carefully proofread and revised it again according to the editor's comments, which can ensure that there are no linguistic errors in the paper now.

 

Point 2: Also, I have closely analyzed the format of the article, in order to check whether it follows the guidelines which are specific to the publisher. Thus, I have noticed that the current form of your work needs improvement in this regard. So, my kind suggestion is to closely analyze again the guidelines belonging to the publisher, since the article should fit exactly the publisher’s guidelines. For instance, the keywords, the subsections, the references, currently do not fit the style and the requirements of the publisher. Also, it would be highly recommendable to include in the abstract of your study more highly relevant details that refer to the research objectives and the methodology used. This would definitely be considered a plus for your scientific work.

 

Response 2: In order to solve the reviewer's problem about the format of the paper, the author also used MDPI's layout service, and after the revision, we can ensure that the structure of the paper fully meets the publisher's requirements.

This paper fully adopts the reviewer's suggestion to add research details in the abstract, and the authors have enriched the research methods and conclusions obtained from the study in the abstract, and the revised abstract is as follows.

Recent years have witnessed Outward Foreign Direct Investment (OFDI) becoming a dominant resource for firms from emerging markets to enhance their innovation capability and achieve sustainable development. However, affected by the COVID-19 epidemic and anti-globalization, multinational enterprises (MNEs) from developing countries, especially OFDI enterprises whose main purpose is knowledge seeking, have suffered. In the face of investment constraints, im-proving the investment efficiency is an urgent issue for MNEs in developing countries. The formal institutional distance (FID) between home and host countries has challenged MNEs to make ad-justments according to the business environments of the host countries, which largely shape the innovation benefits of OFDIs. To investigate such an important but under-studied issue, this paper specifically examines the impact of the FID on improving the innovation capabilities of OFDIs secured by Chinese firms. We disentangle the effect of the FID on OFDI R&D resource acquisition and its moderating effect on the relationship between OFDI R&D resource and innovation per-formance theoretically. We use the Worldwide Governance Indicators (WGI) to measure the FID. Based on a sample of Chinese firms that invested in 28 host countries from 2003 to 2017 and via linear regression and threshold regression methods, we found that the FID has a crucial negative effect on OFDI R&D resource and has a significant negative moderating effect (threshold effect) on the relationship between OFDI R&D resource and innovation performance (i.e., when the FID is lower than the threshold, then the FID has a considerable negative moderating effect, whereas the effect would be less influential if the FID surpassed the threshold). Our findings highlight the importance of considering the FID when choosing OFDI destinations, especially when the firm invests with the aim of strengthening its innovation capability.

 

Point 3: In continuation, the suggestion would also be inserting in your article a few ideas concerning the correlation between effects of the Covid-19 pandemic and the Covid-19 global crisis, sustainability and sustainability assessment, while focusing on the institutional distance and innovation from the Outward Foreign Direct Investment (OFDI), since these are key focuses these days. In this context, I had the chance to read a few interesting scientific works recently, among which I would like to mention: (2021). Measuring Progress Towards the Sustainable Development Goals: Creativity, Intellectual Capital, and Innovation. In C. Popescu (Eds.), Handbook of Research on Novel Practices and Current Successes in Achieving the Sustainable Development Goals (pp. 125-136). IGI Global. https://doi.org/10.4018/978-1-7998-8426-2.ch006; European Commission. European Economic Forecast. Institutional Paper. No. 169. February 2022. European Economy. Luxembourg: Publications Office of the European Union, 2022 PDF ISBN 978-92-76-43938-7 ISSN 2443-8014 doi:10.2765/333044 KC-BC-22-0006-EN-N. https://ec.europa.eu/info/sites/default/files/economy-finance/ip169_en.pdf.

 

Response 3: I am very grateful to the reviewer for your thoughts on the correlation between the impact of the Covid-19 pandemic and the Covid-19 global crisis, sustainability and sustainability assessment. I have read the papers and materials you mentioned, which provided me with a deeper understanding of the current form of sustainability in the world. The topic of this paper is helpful in how developing countries can persist in sustainable development in the context of the Covid-19 pandemic and trade reverse globalization. I have highlighted the current context of the global Covid-19 pandemic and the barriers to sustainable development in developing countries in the abstract, introduction, and conclusion sections of this paper, which I think can provide some interest to readers who are concerned about these topics.

 

Author Response File: Author Response.docx

Reviewer 2 Report

Journal: Sustainability (ISSN 2071-1050)

Manuscript ID: Sustainability - 1677570

Manuscript Type: Article

Title: Institutional distance and innovation from OFDI

Review Report

Using China’s Outward Foreign Direct Investment (hereafter, OFDI) in 28 major trading partners in the period of 2003 and 2017, this paper examines whether or not the institutional distance will interfere with the innovation performance of OFDI companies. It hypothesizes and finds the following, 1) the formal institutional distance (FID) has a crucial negative impact on OFDI’s Research and Development (R&D) capital acquisition, and 2) there is a significant threshold effect of FID on the effect of OFDI R&D capital utilization efficiency. It is a well-written, interesting research paper and with your permission, I would like to share the following suggestions for your consideration:

1. Define the key terms: Please consider providing definitions of key terms as early as possible. For example, what does it mean by Chinese MNEs (refer to line 36)? And, I think readers will be benefited if the author(s) provide some explanations of what OFDI reverse technology spillovers are. I do see that these terms are explained in the paper; however, if they can be defined early it would be even better. In addition, please consider adding an appendix describing all variables (e.g., how they are constructed) in your tested models and equations in order to improve readability.
2. Research design: In my opinion, one of the tangible strengths of this paper is that there are theoretical components as well as empirical parts in the study. However, I do not think that the employed research designs (tested models) are suitable ones. In my understanding, the key finding is the regression results of Model 2 reported in Table 4 with FID. Before Table 3, I would recommend adding the correlation reports, both Pearson and Spearman correlation. Based on the results, the author(s) may consider combining Models 2, 3, 4, 5, 6, 7, and 8 into one model – using a latent variable or a combined proxy. Frankly speaking, I do not have a perfect solution given the fact that there is a multicollinearity concern with your model.
3. Economic significance: The statistical interpretation and its significance are provided (refer to page 11):

“Every increase in FID by 1 unit shrinks OFDI R&D resource stock by 0.178%.”

I wonder what it means economically. Can you provide a somewhat direct interpretation of this empirical finding?

4. Generalizability: Are the findings of this paper applicable to other settings? If not, please provide some explanation for why that would be the case.      

5. I see a few sentences without proper citations. There are a couple of typos. For example, on page 5, line 214 it is not assumption but hypothesis. Proofreading is recommended.

In sum, I again thank you for giving me this opportunity to learn from your research project and I wish you the very best.

Best Regards,

Author Response

Response to Reviewer 2 Comments

 

Point 1:  Define the key terms: Please consider providing definitions of key terms as early as possible. For example, what does it mean by Chinese MNEs (refer to line 36)? And, I think readers will be benefited if the author(s) provide some explanations of what OFDI reverse technology spillovers are. I do see that these terms are explained in the paper; however, if they can be defined early it would be even better. In addition, please consider adding an appendix describing all variables (e.g., how they are constructed) in your tested models and equations in order to improve readability.  

 

Response 1: The paper strictly follows the reviewers' suggestions and explains each key term when it first appears, such as OFDI, MNEs, FID, WGI, the reverse technology spillover effect. At the same time, this paper adjusts the position of defining key terms, and all key terms are defined in introduction. The concept of reverse technology spillover is defined in the first sentence of the third paragraph of the introduction. In addition, in order to make the variables more understandable to the reader, a summary table of control variables is created in the text of this paper (Table 1), and a summary table of all variables is created in the appendix (Table A1), where the table contains the label, definitions and sources of the variables. The reader can easily understand the calculation of the variables from the table. What's more, this paper also optimizes the structure of the Method chapter, with a more detailed description of each variable.

 

Point 2: Research design: In my opinion, one of the tangible strengths of this paper is that there are theoretical components as well as empirical parts in the study. However, I do not think that the employed research designs (tested models) are suitable ones. In my understanding, the key finding is the regression results of Model 2 reported in Table 4 with FID. Before Table 3, I would recommend adding the correlation reports, both Pearson and Spearman correlation. Based on the results, the author(s) may consider combining Models 2, 3, 4, 5, 6, 7, and 8 into one model – using a latent variable or a combined proxy. Frankly speaking, I do not have a perfect solution given the fact that there is a multicollinearity concern with your model.

 

Response 2: I would like to thank you for your valuable suggestions on the research design section, and I have made the following adjustments and explanations in response to your suggestions.

1, This paper complements the correlation matrix of Spearman and Pearson, presented in Table 3 and Table A2, respectively. Combined with the results of the VIF test, it can be concluded that the present research design of this paper does not involve serious multicollinearity problems.

2, As your understanding, Model 2 in Table 4 is the main finding of the first research question in the previous draft. The independent variables in models 3-8 are all sub-dimensions of the independent variable in model 2 (FID), and these models were set up to test the effect of each sub-dimension of FID on the dependent variable. If the independent variables of models 2-8 are combined into one model then full multicollinearity must occur and is useless for explaining the effect of each sub-dimension. Therefore, the authors chose to regress the sub-dimensional variables separately in the previous draft. To make the main findings of the first question of this paper clearer, only the results of the first two models are kept in the main text of this paper, and the regression results of the sub-dimensional variables are placed in the appendix (Table A3). Regarding the findings in Table A3, the paper is only briefly described in Section 4.1 of the main text.

3, In order to mitigate the multicollinearity, this paper also makes adjustments in the control variables by using the market size variable instead of the industrial development distance variable.

 

Point 3: Economic significance: The statistical interpretation and its significance are provided (refer to page 11):“Every increase in FID by 1 unit shrinks OFDI R&D resource stock by 0.178%.”

I wonder what it means economically. Can you provide a somewhat direct interpretation of this empirical finding?

 

Response 3: This paper adopts the recommendations for a more nuanced interpretation of the empirical results, both at the data level and at the economic level. The revised interpretation also provides an explanation for the results at the theoretical level. The sentence referred to by the reviewer is shown below in the revised paper.

The elasticity of the FID and OFDI R&D resource is −0.991. It can be seen that the FID has a significant negative effect on the OFDI R&D resource. The larger the FID between the home and host countries, the weaker the absorptive capacity of the OFDI R&D resource.

This result shows that the outsider disadvantage theory has dominant explanatory power between the FID and OFDI R&D resource acquisition. When the FID is large, MNEs have to spend money to adapt to the institutional environment of the host country and to gain legitimacy, while the communication gap due to institutional differences increases the difficulty of OFDI R&D resource acquisition.

 

Point 4: Generalizability: Are the findings of this paper applicable to other settings? If not, please provide some explanation for why that would be the case. 

 

Response 4: This paper adds a section on Discussion and Conclusions, which includes main findings, theoretical implications, political implications, and Suggested Future Extensions. The theoretical implication section describes the connections and contributions between the findings of this paper and the existing literature. By embedding this paper into the theoretical system composed of existing literature, the context in which the conclusions and research methods of this paper are applicable can be found. The limitations and shortcomings of this paper are mentioned in Suggested Future Extensions, and a few ideas for further future research are provided.

 

Point 5:  I see a few sentences without proper citations. There are a couple of typos. For example, on page 5, line 214 it is not assumption but hypothesis. Proofreading is recommended.

 

Response 5: This paper was very carefully listened to the reviewers' comments. After carefully reading and revising the entire paper, the authors chose MDPI's English proof reading service for further revisions. After receiving the revised paper, the author carefully proofread and revised it again according to the editor's comments, which can ensure that there are no linguistic errors in the paper now.

Author Response File: Author Response.docx

Reviewer 3 Report

The paper examines the impact of institutional distance on the improvement of innovation capabilities from OFDI secured by Chinese firms. The topic is interesting and relevant. Data and methodology are well described and presented results are clear.

Suggestion for the author is to add a discussion part, either after results or in the conclusion. Author should list and compare his results with similar relevant studies. Paper needs to be proof-read.

Author Response

Response to Reviewer 3 Comments

 

Point 1:  Suggestion for the author is to add a discussion part, either after results or in the conclusion. Author should list and compare his results with similar relevant studies.  

 

Response 1: This paper adds a section on Discussion and Conclusions (section 5), which includes main findings, theoretical implications, political implications, and Suggested Future Extensions. The theoretical implication section describes the connections and contributions between the findings of this paper and the existing literature. By embedding this paper into the theoretical system composed of existing literature, the context in which the conclusions and research methods of this paper are applicable can be found. The limitations and shortcomings of this paper are mentioned in Suggested Future Extensions, and a few ideas for further future research are provided.

 

Point 2: Paper needs to be proof-read.

 

Response 2: This paper was very carefully listened to the reviewers' comments. After carefully reading and revising the entire paper, the authors chose MDPI's English proof reading service for further revisions. After receiving the revised paper, the author carefully proofread and revised it again according to the editor's comments, which can ensure that there are no linguistic errors in the paper now.

 

Author Response File: Author Response.docx

Reviewer 4 Report

The topic of the paper is interesting and vital for informing policy making.  It deals with an extremely important subject regarding the influence of institutional distance on improvement of innovation capabilities from Outward Foreign Direct Investment (OFDI) secured by Chinese companies. As to advantages of the paper, it is interesting to see, that the Author makes use of the Worldwide Governance Indicators (WGI) to measure the institutional distance between countries. But so far, I find the paper difficult to read, as the flow of ideas is not very smooth, especially when it comes to the research design. I would advise to carry out a rigorous explanation of how the authors conduct their research. I would also recommend to be more specific on the sample description, as well as variables description. .In the conclusions section - it would be appropriate to discuss the results and to conjuncture them with the previous studies on the subject. What are the limitations of the study? What are future lines of the research? What are the implications for policy making?

Referring to the language of the paper -  I would suggest professional editing to improve the readability of the paper. There are some language-related issues which should be addressed with professional editing and the readability of the paper will increase as a result. Below, I indicate some of expressions which need to be corrected or explained in more clear way:

• - line 12- „this p specifically examines” – is p for paper?
• - line 34- 36 structure of the sentence:” there have been many scholars who proved the positive effect  that making OFDI enables companies in developing countries to boost their innovation  abilities by analysing the data set of Chinese MNEs” – „ by analysing the data set” refers to the research method of scholars not to the way of boosting innovation abilities of companies.
• - line 64 – which “force” or “forces”?
• - line 74 „existential literature” – or existing literature ?
• line 74 – “innovations of this paper” –better “contributions”?
• - line 78 „ making up the blank of theoretical research” – Does the Author mean filling the gap in the research ?
• - line 124 – “financial level of the host country” – how is it measured?
• - line 235 “public products” – what do you mean by that? Public goods?
• - line 239 “China is regarded as a sample of investment home country” – what do you mean?
• -line 251 Hypothesis 2 – unclear. Please rephrase
• - line 324 – unclear explanation of the proxy for formal institutional distance.

Author Response

Response to Reviewer 4 Comments

 

Point 1:  “I find the paper difficult to read, as the flow of ideas is not very smooth, especially when it comes to the research design. I would advise to carry out a rigorous explanation of how the authors conduct their research. I would also recommend to be more specific on the sample description, as well as variables description.”

 

Response 1: Thank you very much for the comments. I think the problems you mentioned are due to the following reasons: 1) the lack of clarity in the formulation of the theoretical hypotheses and the lack of smoothness in the research ideas; 2) the lack of more detailed descriptions of the research design and the explanation of variables; 3) the language problems of the paper that hinder the understanding. In order to solve the above problems this paper has made the following efforts.

1. This paper reorganizes the theoretical parts and re-proposes three hypotheses based on theoretical support. This paper argues that the effect of FID on the innovation performance of OFDI MNEs includes the effect on OFDI R&D resource acquisition ability and the effect on innovation performance of OFDI R&D resouce, so this paper firstly proposes Hypothesis 1 for the relationship between FID and OFDI R&D resource acquisition ability; secondly based on the theory of outsider disadvantage this paper argues that FID has a negative moderating effect on the innovation performance of OFDI R&D resource and proposes Hypothesis 2; finally based on the theory of institutional arbitrage this paper argues that the moderating effect of FID is non-linear, specifically manifested as a threshold effect, and therefore proposes Hypothesis 3. In order to make the research thought clearer, this paper re-supplements the theoretical roadmap, as shown in Figure 1.
2. This paper provides a more detailed description of the sample and variables, and the layout has been adjusted to make the paper clearer. The paper is also supplemented with variable summary tables in the text and appendices, respectively, which contain the label, description, and source of the variable.
3. In section 3.3 this paper supplements the correlation test. In section 3.4 this paper supplements the regression model with moderating effects to test hypothesis 2.
4. In the results section, the paper adds mathematical, economic explanations to the main regression results and combines them with theory to explain the reasons for the appearance of this result.
5. The author choses MDPI's proofreading service, which makes the language style of the paper more accessible.

 

Point 2: “In the conclusions section - it would be appropriate to discuss the results and to conjuncture them with the previous studies on the subject. What are the limitations of the study? What are future lines of the research? What are the implications for policy making?”

 

Response 2: This paper adds a section on Discussion and Conclusions (section 5), which includes main findings, theoretical implications, political implications, and Suggested Future Extensions. The theoretical implication section describes the contributions and the connections between the findings of this paper and the existing literature. By embedding this paper into the theoretical subject composed of existing literatures, the context in which the conclusions and research methods of this paper are applicable can be found. The limitations and shortcomings of this paper are mentioned in Suggested Future Extensions, and a few ideas for further future research are provided. We also provide some political implications basd on our main findings.

 

Point 3: “Referring to the language of the paper - I would suggest professional editing to improve the readability of the paper. There are some language-related issues which should be addressed with professional editing and the readability of the paper will increase as a result. Below, I indicate some of expressions which need to be corrected or explained in more clear way:

• - line 12- „this p specifically examines” – is p for paper?
• - line 34- 36 structure of the sentence:” there have been many scholars who proved the positive effect that making OFDI enables companies in developing countries to boost their innovation abilities by analysing the data set of Chinese MNEs” – „ by analysing the data set” refers to the research method of scholars not to the way of boosting innovation abilities of companies.
• - line 64 – which “force” or “forces”?
• - line 74 „existential literature” – or existing literature ?
• line 74 – “innovations of this paper” –better “contributions”?
• - line 78 „ making up the blank of theoretical research” – Does the Author mean filling the gap in the research ?
• - line 124 – “financial level of the host country” – how is it measured?
• - line 235 “public products” – what do you mean by that? Public goods?
• - line 239 “China is regarded as a sample of investment home country” – what do you mean?
• -line 251 Hypothesis 2 – unclear. Please rephrase
• - line 324 – unclear explanation of the proxy for formal institutional distance.”

 

Response 3: Thank you very much for your careful review! This paper was very carefully listened to the reviewers' comments. After carefully reading and revising the entire paper, the authors chose MDPI's English proof reading service for further revisions. After receiving the revised paper, the author carefully proofread and revised it again according to the editor's comments, which can ensure that there are no linguistic errors in the paper now. In this way we can solve the problem: 1, 2, 3, 4, 5, 6, 8.

Problem 7: The authors in the reference literature use “Ratio of the sum of loan balances and deposit balances of financial institutions to GDP (fin1) and ratio of loans to GDP by region (fin2)” to measure the financial level.

1. Huangpeng, L.; Yan, T. OFDI yu Guonei Chuangxin Nengli Guangxi zhong de ‘Menkan Xiaoying’: Quyu Jinrong Fazhan Shijiao de Shizheng Fenxi. Res. Manag. 2015, 36, 1–7.

Problem 9: The paragraph in which the sentence is located does not conform to the original meaning of this paper, and has now been rewritten, and the rewritten paragraph is as follows.

 

Although the outside disadvantages perspective predicts a negative effect of FID on innovation activities, we propose a threshold moderating effect of FID in the process of the transformation from OFDI R&D resource to innovation performance. Specifically, we ar-gue that, When the FID is small, the process is only affected by the negative effect of the FID, and when the FID is large, it is affected by both positive and negative effects, so it shows the characteristics of the threshold. We have these propositions based on the fol-lowing reasons: developing countries are in the process of institutional environment de-velopment, and there is still some immaturity; therefore, MNEs may seek institutional ar-bitrage and institutional escape in host countries with a greater FID to pursue better a business environment and public goods. In terms of institutional arbitrage, some scholars have inferred that the companies making OFDIs could profit from institutional differences [31]. Luiz and Ruplal [32] believe that multinational companies could use OFDI to cir-cumvent the institutional restrictions of the home country while obtaining policy subsi-dies. By virtue of the relatively loose policy conditions and diversified public goods of the host country, companies can achieve technological exchanges and realize the absorption of technology. At this situation FID has a positive regulation effect on the process of the transformation from OFDI R&D resource to innovation performance.

Since the phenomenon of institutional arbitrage generally exists in the case of large differences in the FID [31], the moderating effect of the FID on the relationship between OFDI R&D resource and innovation performance is weakened when the FID is too large, making the moderating effect show a nonlinear characteristic. This paper argues that the negative impact of the FID on the OFDI innovation performance of firms from developing countries is nonlinear. This nonlinear characteristic will take the form of a threshold effect. Therefore, this paper proposes the following hypothesis:

 

Problem 10: Hypothesis 2 has been rewriten as: “The FID has a significant on the effect of OFDI R&D resource. When the FID is less than the threshold, the OFDI R&D resource promotes innovation performance; when the FID is greater than the threshold, the OFDI R&D resource has no effect on the innovation performance.”

Problem 11: The explanation of the proxy for formal institutional distance has been rewritten.

Author Response File: Author Response.docx

Round 2

Reviewer 4 Report

The Authors have made several changes in the manuscript.

Author Response

Thank you very much for your review and your approval of my last revision. In this revision I focused on checking spelling issues and formatting issues, I reorganized Hypothesis 3 and modified the formatting of Tables 5 and 6 to make them more standardized. The revised hypothesis 3 is presented as follows:

Hypothesis 3: The FID has a significant threshold effect on the relationship between OFDI R&D resource and innovation performance. When the FID is less than the threshold, the OFDI R&D resource promotes innovation performance; when the FID is greater than the threshold, the OFDI R&D resource has no effect on the innovation performance.