An Empirical Study of Foreign Direct Investment Location in Eastern China

Xing Li, Keqiang Hou () and M. W. Luke Chan

Chinese Economy, 2008, vol. 41, issue 6, 75-98

Abstract: This paper examines the determinants of foreign direct investment (FDI) for the Eastern Region of China as a whole by excluding the two lesser jurisdictions and concentrating on the Big Five jurisdictions from 1993 to 2005. Robust estimates and a better understanding of FDI in Eastern China are obtained by employing robust Ordinary Least Squares (OLS), the randomeffect model, and the fixed-effect model separately on each case. Without any outliers and serial correlation in residuals, the Big Five case gives us the most reliable estimates of determinants of FDI in Eastern China. Market size and labor quality are found to have a positive, significant, and quantitatively large effect on FDI in Eastern China, whereas education and infrastructure have a statistically nonsignificant positive direct effect on FDI. As for the level of local physical investment, we found a small crowding-out effect on FDI in the Big Five case.

Date: 2008
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