Market Size And Fdi Location Choice

In the past thirty years, FDI has played an important and essential role in Chinese economy development process. Therefore analyzing the motives of foreign direct investment (FDI) has been a hot issue in theoretic study. In order to adapt to the competitive circumstance, MNCs began to focus on the market potential in the location choice of international production in China.Though FDI has certain facilitation to the economic growth of a country, but the function is not same to the different areas or provinces. What does influence the effect of the FDI is our conversation? This dissertation reconsidered the question of FDI location choice from a new perspective based on the framework of market potential, and carried out various empirical studies. The purposes of this paper is to observe and study that whether the increase of market potential leads to the increase of the FDI in the district, which is crucial and significant to Chinese economy development in the new century.Based on the detail review of theoretical and empirical literature, as well as the data analysis, this paper analyzed the question of FDI location choice from a new perspective based on the framework of market potential, and carried out the empirical study of the influence of market potential to FDI. Through the detailed research, we discovered some rules of FDI location choice, got several valuable theoretic findings and policy suggestions.Derived from the brief summary above, this paper chooses 27 provinces in China and uses panel data model and the data of FDI amount in to each province during 1998-2005 from the major countries or regions. This paper analyzes the influence of market potential to the distribution of FDI. In the sample session, the increase of market potential in one district has a clear positive affection on the inflow of FDI. The result is robust. In addition, there was difference of effect among regions. Eastern regions had owed strong power of attracting FDI because of the great potential market, while in central and western regions was relative weak.Finally, based on the basic rules of FDI and market potential, we think about the strategies of attracting foreign capital in new circumstance. Government must switch the strategies to fasten the industry chains reform, build mega city area and enhance the efficiency of attracting FDI.