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Determinants of Locations of Foreign Direct Investment in China

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  • Li, Shaomin
  • Park, Seung Ho

Abstract

This study examines the factors that affect the choice of location for foreign direct investment (FDI) in China. We identify three groups of factors that may affect the location choice by foreign firms: agglomeration economies, infrastructure, and institutional changes resulting from the economic reform. The study utilizes the most recent data from China's industrial census for the empirical testing. The findings show that agglomeration economies, in particular the clustering of foreign firms and domestic firms, exert the strongest effect on FDI location. Higher FDI concentration tends to attract more foreign firms. The clustering of domestic firms exerts a negative effect on FDI locations. Better infrastructure (electricity, telecommunications, and road) and greater institutional change (open policies, privatization, and legal development) also show positive effects on FDI location. The size of the local economy does not seem to affect the choice of location of FDI.

Suggested Citation

  • Li, Shaomin & Park, Seung Ho, 2006. "Determinants of Locations of Foreign Direct Investment in China," Management and Organization Review, Cambridge University Press, vol. 2(1), pages 95-119, March.
    • Handle: RePEc:cup:maorev:v:2:y:2006:i:01:p:95-119_00
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    JEL classification:

    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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