 Invest to win: A study of "Local bias jumping" in ChinaJidong Li, Cheng Yuan and Zhichun Huang Journal of Economic Behavior & Organization, 2025, vol. 236, issue C Abstract: We document a paradoxically positive relationship between the strong preference of local governments for local business and domestic capital inflow in China. Confronted by barriers posed by the bias of local governments towards local suppliers in procurement markets, firms strategically move through capital markets via investments. We call this phenomenon "local bias jumping" (LBJ). Using comprehensive datasets of procurement winners and losers, we find that the probability of local firms winning contracts is 1.44 times that of nonlocal firms. Furthermore, investing in local subsidiaries appears to provide a significant advantage in procurement competitions. Nonlocal firms with investments one to three years prior to bidding are 1.5 times more likely to win contracts than those without such investments. LBJ-driven investments flow from developed to less developed regions, promoting interregional capital mobility. Our findings underscore the dual impact of local bias in China's investment landscape, revealing its complex effects on economic development. Keywords: Local bias jumping; Local protectionism; Government procurement; Cross-regional investment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:236:y:2025:i:c:s016726812500246x DOI: 10.1016/j.jebo.2025.107127 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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