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

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

Rechten: Alle rechten voorbehouden

Samenvatting

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.

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OrganisatieHogeschool Utrecht
AfdelingKenniscentrum Innovatie en Business
LectoraatInternational Business and Innovation
Gepubliceerd inJournal of Chinese Economic and Business Studies Vol. 9, Uitgave: 1, Pagina's: 23-42
Jaar2011
TypeArtikel
TaalEngels

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