Determinants of Locations of Foreign Direct Investment in China

Shaomin Li and Seung Ho Park
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Shaomin Li: Old Dominion University

Management and Organization Review, 2006, vol. 2, issue 1, 95-119

Abstract: This study examines the factors that affect the choice of location for foreign direct investment (FDI) in China. We identify three groups of factors that may affect the location choice by foreign firms: agglomeration economies, infrastructure, and institutional changes resulting from the economic reform. The study utilizes the most recent data from China's industrial census for the empirical testing. The findings show that agglomeration economies, in particular the clustering of foreign firms and domestic firms, exert the strongest effect on FDI location. Higher FDI concentration tends to attract more foreign firms. The clustering of domestic firms exerts a negative effect on FDI locations. Better infrastructure (electricity, telecommunications, and road) and greater institutional change (open policies, privatization, and legal development) also show positive effects on FDI location. The size of the local economy does not seem to affect the choice of location of FDI.

Keywords: Agglomeration Economies; China; Domestic Firms; Economic Reform; FDI Location; Foreign Direct Investment (FDI); Foreign Firms; Infrastructure; Institutional Change; Local Economy (search for similar items in EconPapers)
JEL-codes: M10 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (36)

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