The Relative Location Change Of FDI In China: An Analysis Of WTO Effect

The FDI in China was first concentrated in Guangdong Province and other areas nearby HongKong. But the recent trend of FDI movement shows that the area of YRD has attracted more FDI than Guangdong Province since China's entry to WTO. This paper will focus on the relative location change of FDI in China and trys to reveal the reason of this relative location change. We will start our analysis from the prospectus of the profit maximization process of a representative multinational firm. And by solving the profit function, we find out the main determinants of the relative location change of FDI between certain areas. In addition, we pay special attention to the WTO effect. We find out that China's entry to WTO has a strong effect on the relative location change of FDI, which causes FDI to flow into Jiangsu and Shandong Province, relative to Guangdong Province. Other important variables such as market scale, policy factor and agglomeration factors also have great contribution to the relative location change of FDI in China.