Empirical Study Of FDI Agglomeration Economy In Shandong Province

In the recent years, either in the whole world or only in China, the MNCs are inclined to agglomerate in some certain places, so more and more scholar begin to emphasize the importance of agglomeration economy in attracting FDI. Now, Faced by the fact that agglomeration economy is a very important factor in MNCs location decision, it becomes an important issue how to increase Shandong Province's capacity of attracting FDI through the agglomeration economy. In the first part, we summarize the literature about MNCs location decision and agglomeration. There are two directions of the domestic and foreign researches on the agglomeration economy: on one hand, the decision of the FDI location belongs to the issue of location choice of firm, so some economists analyze the function of the agglomeration economy in FDI agglomeration from the view point of industrial agglomeration; on the other hand, FDI involves the investments among countries, so some economists emphasize the influence of risk avoidance on MNCs location decision, especially in the trans-economy. In the second part, based on the characteristics of FDI agglomeration, this article divides the effect of agglomeration into two kinds: Investment Country Agglomeration Economy and Industry Agglomeration Economy. Through the model of mechanism analysis of the investment country agglomeration economy, we can draw the conclusion: the way of this kind economy attracting FDI is by cutting down the information cost which is necessary when foreigner investors search market information, and the effect maybe different depending on the different invest countries. Through the model of mechanism analysis of the industry agglomeration economy, we come to the conclusion: the way of this kind economy attracting FDI is by increasing the profit which is brought by economic externality, and the effect is till different which depends on the length of industrial chain, the technique of production, the innovation of technology. In the third part, this article makes an empirical study of FDI agglomeration economy in Shandong Province on the base of theory. First, through Grey Relational Analysis of FDI agglomeration economy, we find that agglomeration factors have been crucial in MNCs location decision, and among which the accumulative FDI is the most important one. Follow that, we validate the conclusion of the second part through a Linear Regression Model by using the data of Shandong Province. In the last part, the article points out that the Shandong government must attach importance to the law of agglomeration economy if they want to make use of it to attract FDI. In the end, the article also points out some suggestions about how to attract FDI using agglomeration economy.