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Where a contract is signed determines its value: Chinese provincial variation in utilized vs. contracted FDI flows

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  • Abigail S. Hornstein

    (Department of Economics, Wesleyan University)

Abstract

There are major differences between ex ante corporate investment plans and ex post investments. The case of China is useful for understanding this problem because there is substantial time series and cross sectional variation in the ratio of utilized to contracted FDI (UC ratio), which is less than one in most province-year observations. Provinces may believe that they are rewarded for reporting higher levels of contracted FDI, which would lead to lower UC ratios and higher policy incentives in subsequent years. Alternatively, provinces may be rewarded for reporting data more accurately, which would lead to higher UC ratios and policy incentives in subsequent years. Empirical analysis supports the second, institutional theory and suggests that provinces may increase their rate of utilizing pledged FDI by strengthening their legal systems and reducing government bureaucracy.

Suggested Citation

  • Abigail S. Hornstein, 2009. "Where a contract is signed determines its value: Chinese provincial variation in utilized vs. contracted FDI flows," Wesleyan Economics Working Papers 2009-006, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2009-006
    DOI: 10.1016/j.jce.2010.10.002
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    Cited by:

    1. Hornstein, Abigail S., 2014. "The impact of local governance institutions on foreign market listings: The case of Chinese firms," China Economic Review, Elsevier, vol. 29(C), pages 46-67.
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    3. Kong, Dongmin & Ma, Guangyuan & Qin, Ni, 2022. "The political economy of firm emissions: Evidence from a quasi-natural experiment in China," European Journal of Political Economy, Elsevier, vol. 75(C).
    4. Hornstein, Abigail S. & Naknoi, Kanda, 2023. "FDI commitments increase when uncertainty is resolved: Evidence from Asia," Journal of Asian Economics, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Foreign direct investment (FDI); China; Policy; Institutions;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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