A Study Of FDI Location Choice From The Perspective Of Agglomeration Economies

Since the birth of multinational corporations(MNCs), many researchers have paid attention to the location choice of outward direct investment. As global capital flows more and more frequently and MNCs evolve into the core of international economic development gradually, analyzing the motives of foreign direct investment(FDI) has been a hot issue in theoretic study. However, with the depth of globalization, international competition among corporations has become more fiercely. In order to adapt to the competitive circumstance, MNCs began to focus on the integeration of industry chains in the location choice of international production. Global direct investment takes on a new characteristic of spatial distribution, which MNCs agglomerate at the level of sub-country even in the regions at the lower level. Traditional theories of international economics can not give a satisfactory analysis on such a phenomenon. This dissertation reconsidered the question of FDI location choice from a new perspective based on the framework of agglomeration economies, and carried out various empirical study of the FDI agglomeration. Through the detailed research, we discovered some rules of FDI agglomerating, got several valuable theoretic findings and policy suggestions.The distribution of FDI in China appears a descending situation from the east to the west. Majority of foreign investment enterprises(FIEs) cluster in the eastern regions. There are some relative large areas of FDI agglomeration in Guangdong,Jiangsu,Shanghai and so on. For the external benefits of agglomeration economies, new FIEs continuously locate in these regions. During the course of causal circulation, the gap of FDI distribution has been broaden. Granger causality test demonstrated two causal ways between FDI stocks and flows. The econometric analysis also revealed that there was significant effect of FDI agglomeration at the provincial level, and this effect had been strengthening. In addition, there was difference of agglomeration effect among regions. FIEs in east had formed relative integrated industry chains. Eastern regions had owed strong power of attracting FDI. But the agglomeration effect in central and western regions was relative weak.Agglomeration economies is mainly an economic phenomenon existing among industries. It is to say that agglomeration economies is industry agglomeration caused by the centralization of the same industry or linkage industries. Author set up a model of FDI location choice based on industry agglomeration to discusses the mechanism how industry agglomeration affects the location decision of foreign enterprises and puts forward several hypothesis. Then we carry out an empirical study based on the dataset of foreign firms in Jiangsu Province. According to the sample of 2-digital SIC, we estimate the effects of agglomeration on FDI location choice,historical trend of agglomeration and agglomeration propensity of individual industry. Finally, we continue to investigate the characteristic of industry agglomeration through the sample of 3-digital SIC in order to analyze the effects of characteristics of scale economies and technology on industry agglomeration.Foreign direct investment has the characteristic of agglomeration and takes on the significant country(area) effects, namely country of origin effects. This paper applies the econometrical models of location choice to make an empirical study of the country(area) effects of FDI agglomeration based on the data of Foreign Funded Enterprises(FFEs) in Jiangsu province. The findings suggest that FFEs show high propensity to agglomerate with firms from the same origin.