The Impact Of FDI Spillover On New Firm Location

A great mount of the foreign direct investment (FDI) flows into China since the Reformand Opening-up was born. FDI not only brings direct capital, creats job opportunities, but alsoindirectly products spillover to individuals or other businesses. Since FDI spillover has"localized" feature, and only neighboring companies can effectively absorb spillover, so it isworth study whether FDI spillover is one of the important factor to new business’ locationdecisions. This paper, based on location theory and empirical research, investigates the effects ofFDI spillover on new firm location.This paper uses micro-level China manufacturing data and applies Negative BinominalModel to investigate the effects of FDI spillover on new firm location in1998-2007. The mainconclusions are that the FDI spillover is one of important determinants of firm location and thatthe impacts of three kinds of FDI spillover are different. In general, both FDI horizontal andbackward spillover have significant positive effects on firm location. Meanwhile, FDI forwardspillover only has significant positive effects on foreign firm location, but on domestic firm.Further, after classifying the domestic firms to large firms and SMEs, we find FDI forwardspillover has positive effect on the former, but on the latter. In addition, the impacts of the threekinds of FDI spillover on foreign firms location are stronger than those on domestic firmsrespectively.Finally, with conclusion，this paper offer two revelation to the local government about inviteinvestment and strengthening the link between the foreign and domestic enterprises.