Foreign direct investment and industrial agglomeration: Evidence from China

Wen-Tai Hsu, Yi Lu, Xuan Luo and Lianming Zhu

Journal of Comparative Economics, 2023, vol. 51, issue 2, 610-639

Abstract: This paper studies the effect of foreign direct investment (FDI) on industrial agglomeration. Using the differential effects of FDI deregulation in 2002 in China on different industries, we find that FDI affects industrial agglomeration negatively. As FDI brings technological spillovers and various agglomeration benefits, other forces must be at work to drive this empirical finding. We propose a simple theory that FDI may discourage industrial agglomeration due to fiercer competition pressure. We find various evidence of this competition mechanism. We also find that FDI deregulation is conducive to industrial growth, but the dispersion induced by FDI deregulation reduces the positive effect of FDI on the growth rate by 8 to 14%.

Keywords: FDI; Deregulation; Industrial agglomeration; Competition; Industrial growth; WTO; China (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Foreign Direct Investment and Industrial Agglomeration: Evidence from China (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:51:y:2023:i:2:p:610-639

DOI: 10.1016/j.jce.2022.12.004

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