driving time is found to have the strongest positive effect on FDI in Middle East and North Africa followed by Europe and Central Asia and no significant effect in East Asia Pacific, South Asia and Sub-Saharan Africa. Longer railway is found to have a significant positive effect in South Asia and Middle East and North Africa, but not in the other regions. A better airway index significantly attracts more FDI in East Asia Pacific and Europe and Central Asia, but not in the other regions. The effect of port quality is found to be the strongest for Sub-Saharan Africa, albeit statistically insignificant, followed by Middle East and North Africa and South Asia.

When interacting transportation cost, for instance, driving time with country characteristics, we find in Table 17 that the elasticity of FDI flow with respect to transportation cost rises with host country GDP and the number of days to start a business. FDI flows to countries with a larger market size and less efficient business environment appear to be more affected by transportation cost. The results also suggest that the positive FDI effect of reduced transportation cost can be magnified when accompanied by an improvement in business regulatory environment.

Next, we consider alternative measures of transport cost obtained from de Soyres et al. (2018) which use a network analysis to measure the shortest time needed to travel from one country to another and its implied ad valorem trade cost taking into account the quality and quantity of physical infrastructure, physical obstacles (e.g., rough terrain) and borders, and relative performance measures (e.g., rail service frequency). de Soyres et al. (2018) also compute the measures for both before and after the implementation of BRI taking into account the proposed transportation network as part of BRI.<sup>17</sup> Tables 18 and 19 report the estimation results using the travel time and ad valorem measures, respectively. The results suggest that reducing travel time by one day can increase total FDI inflows to BRI countries by 7 percent, FDI flows within BRI countries by 6 percent, FDI flows from OECD countries to BRI countries by 8 percent, and FDI flows from non-BRI countries to BRI countries by 8 percent.

When using the ad valorem time barrier measure, the results suggest that a 10-percent decrease in the ad valorem time barrier is associated with a 11-percent increase in total FDI inflows to BRI countries, a 10-percent increase in intra-BRI FDI flows, a 13.2-percent increase in FDI flows from OECD to BRI countries, and a 13.3-percent increase in FDI flows from non-BRI to BRI countries.

# 4.2 Determinants of Chinese ODI

In this sub-section, we focus on China’s outward investment; given the available information in the CGIT data set, we can differentiate China’s investment across types and sectors. This enables us to explore potential interactions between China’s construction contracts and its ODI and how the former might serve as a catalyst for the latter.

For China’s investment, the following specification is considered:

# ChinaFDI�� �α� � α� MktSize�� � α� SkillDiff��

# � α� Transport� �α�Infrastructure� �α�PTAdepth� �α� Construction����

> 17 We thank the authors for kindly providing the shipment time and trade cost estimates.

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