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Foreign direct investment in China: a spatial econometric study

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Author Info
Cletus C. Coughlin
Eran Segev

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Abstract

Foreign direct investment (FDI) began to flow into China with advent of reforms in 1978. Following a period of relatively slow growth, FDI inflows to China picked up after 1990, as China surpassed every other nation but the United States in attracting foreign investment. In particular, coastal regions of China have received the bulk of FDI inflows to the country. In this paper, we use province-level data to explain the pattern of FDI location across China. We build upon previous research, introducing new potential determinants, using more recent FDI data, and incorporating spatial econometric techniques. In doing so, we test for potential econometric problems arising from the spatial pattern of the data, and correct for them by running more appropriate models. We find that economic size, labor productivity and coastal location attract FDI, while higher wages and illiteracy rates deter it. The transportation infrastructure variables we try are not found to have statistically significant relationships with the level of FDI inflows across provinces.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1999-001.

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Date of creation: 1999
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Publication status: Published in The World Economy, January 2000, 23(1), pp. 1-23
Handle: RePEc:fip:fedlwp:1999-001

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Keywords: China ; Investments; Foreign ; Econometrics;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Head, Keith & Ries, John, 1996. "Inter-City Competition for Foreign Investment: Static and Dynamic Effects of China's Incentive Areas," Journal of Urban Economics, Elsevier, vol. 40(1), pages 38-60, July. [Downloadable!] (restricted)
  2. John Henley & Colin Kirkpatrick & Georgina Wilde, 1999. "Foreign Direct Investment in China: Recent Trends and Current Policy Issues," The World Economy, Blackwell Publishing, vol. 22(2), pages 223-243, 03. [Downloadable!] (restricted)
  3. Broadman, Harry G. & Xiaolun Sun, 1997. "The distribution of foreign direct investment in China," Policy Research Working Paper Series 1720, The World Bank. [Downloadable!]
  4. Harry G. Broadman & Xiaolun Sun, 1997. "The Distribution of Foreign Direct Investment in China," The World Economy, Blackwell Publishing, vol. 20(3), pages 339-361, 05. [Downloadable!] (restricted)
  5. Chien-Hsun Chen, 1996. "Regional determinants of foreign direct investment in mainland China," Journal of Economic Studies, Emerald Group Publishing, vol. 23(2), pages 18-30, May. [Downloadable!] (restricted)
  6. Chen Chunlai, . "Recent Developments In Foreign Direct Investment In China," Working Papers 96_3, Chinese Economies Research Centre.
  7. Lee G. Branstetter & Robert C. Feenstra, 1999. "Trade and Foreign Direct Investment in China: A Political Economy Approach," NBER Working Papers 7100, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Smith Jr. , Donald F. & Florida Richard, 1994. "Agglomeration and Industrial Location: An Econometric Analysis of Japanese-Affiliated Manufacturing Establishments in Automotive-Related Industries," Journal of Urban Economics, Elsevier, vol. 36(1), pages 23-41, July. [Downloadable!] (restricted)
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