Location Choice: Evidence From FDI In China

Foreign Direct Investment is one of the main types of international capital flows and has played an important role in national or regional economic development. Since the beginning of reform, China's history of absorbing FDI has been more than twenty years, Currently China is the largest recipient of FDI inflow, and FDI has become more and more indispensable in the economic growth and social development. But the geographic distribution of FDI in China is overwhelmingly uneven. The east region has attracted about 87 percent of FDI in China, while the central region and the west region have only attracted 13 percent of FDI. Why does the uneven distribution occur? What factors decide the distribution of FDI? What roles do the institutional factors play in the process of inflow of FDI? Compared with its rivals, what are each region competitive advantages? In order to attract more FDI, how does each province improve its investment climate? These questions addressed above are the main topics of this dissertation. There are a little known researches on FDI in China, but that most of them focus on the analysis from the theoretical and qualitative view. In order to utilize FDI and make the policy on FDI, more quantitative investigations are required in the field of FDI research.Based on the theory of location, the economics of MNEs, The paper collects and processes a great deal of real data for FDI and provides a set of index system, which reflects the ability of attracting FDI of each region, applies location factors analysis, the econometric models and multi-regression analysis to examine the determinants of FDI on geographic distribution, to evaluate the investment environment of each province. This paper empirically studies the determinants of FDI location in China during the period of 1985-2003. There is clear evidence that economic size, government policy, industrial structure, openness, infrastructure andthe level of marketization have played important roles to affect the location of FDI in China. The Effect of Government's preferential policy has been strong all the time, but the effect has decreased since 1992. After 1992, the effect of openness has decreased; In contrast, the effect of marketization has increased; Labor cost and the level of urban have played negative roles to attract the location of FDI; Human resource hasn't taken into effect in absorbing FDI. On the basis of the fact, we work out the achievement index and the potential index of the absorbing FDI, Furthermore, we evaluate the advantages and disadvantages of attracting FDI of each province.The paper consists of six parts. The first part introduces the background of the topic, and discusses the research of FDI by the economists home and abroad; The second part discusses the economics of MNEs and the theory of location; The third part discusses the total condition of FDI in China, and takes two characteristics of FDI, the remarkable performance and the regional imbalance, as the main purpose of this research; The fourth part discusses the location determinant factors of affecting FDI. The fifth part discusses works out achievement index and potential index on the base of the location factors, compares their advantages and disadvantages each region; The sixth part comes to conclusion and discusses the research prospect.