Work

Regional determinants of FDI in China: a factor-based approach

Year: 2011

Type: article

Abstract: We empirically investigate the factors that drive the uneven regional distribution of foreign direct investment (FDI) across Chinese provinces from 1995 to 2006. We first perform a factor analysis to summarize information embodied in around 40 variables and derive four FDI determinants: ‘institutional quality’, ‘labour costs’, ‘market size’, and ‘geography’. Applying these estimated factors, we then employ instrumental variable (IV) estimation to account for endogeneity. In line with theoretical predictions, we find that foreign firms invest in provinces with good institutions, low labour costs, and large market size. The Arellano-Bond dynamic panel generalised method of moments (GMM) results show strong agglomeration effects that multinationals tend to invest in provinces which attract other foreign firms, consistent with the economic geography literature. Several robustness tests indicate that low labour costs combined with improvements in institutions are the key for attracting FDI in China.

Source: Journal of Chinese Economic and Business Studies

DOI: 10.1080/14765284.2011.542884

Authors: Martijn A. Boermans, Hein Roelfsema, Yi Zhang

Institutions: University of Applied Sciences Utrecht, Utrecht University

Language: English

Topic: International Business and FDI

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

SDGs: Decent work and economic growth, Industry, innovation and infrastructure

Open Access status: green

Funder: Universiteit van Amsterdam