The impact of digitalization on foreign direct investment inflows into cities in China

Dansha Zhang, Tajul Ariffin Masron and Xiutuan Lu

Cogent Economics & Finance, 2024, vol. 12, issue 1, 2330458

Abstract: This paper explores the impact of digitalization on Foreign Direct Investment (FDI) inflows in 270 Chinese cities from 2012 to 2019, focusing on regional disparities in income levels. Employing the System Generalized Moment Method (GMM), it aims to bridge the gap in understanding how digitalization influences FDI inflows across regions with different income levels. The findings indicate a positive correlation in low-income cities where digitalization significantly attracts FDI, but this effect is limited in medium and high-income cities. These results highlight that incentives and digital infrastructure development could be crucial for enhancing FDI in lower-income regions, making digitalization a potential strategic tool for economic growth.This paper explores the impact of digitalization on Foreign Direct Investment (FDI) inflows in 270 cities in China from 2012 to 2019, focusing on regional disparities in income levels by employing the System Generalized Moment Method (GMM). As previous research on digitalization’s impact on FDI inflows especially at the city level in China is scarce, this study makes two contributions: firstly, we apply the generalized method of moments (GMM) to analyze the digitalization-FDI nexus, providing empirical insights at the city level, which has often been overlooked in previous studies. Secondly, by categorizing cities based on income levels, our study reveals variations in how digitalization impacts FDI across different economic levels. The results of this study offer solutions for economic growth in low-income cities, as the research findings show a positive correlation between digitalization and FDI attraction in low-income cities, although this effect is limited in middle - and upper-income cities. It is emphasized that the development of digital infrastructure is crucial for boosting FDI in low-income regions, thereby making digitalization a potential strategic tool for enhancing economic growth in these areas.

Date: 2024
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DOI: 10.1080/23322039.2024.2330458

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