Location Decision Of China’s Foreign Direct Investment And Firm Heterogeneity

The’New new trade theory’was motivated by empirical evidence of firm-level facts that based on the profit-maximization decisions of heterogeneous firms, explains the reason that effect firm’s behavior of internationalization. The theoretical papers combine heterogeneous theory with foreign direct investment by adding critical elements to theoretical models:heterogeneity in firms’ productivity and cut-off productivity of the host-country. It analyzes the different location decisions of firms under heterogeneous firms and multi-dimensional factors of host county.China’s outward direct investment has experienced a rapid growth for more than a decade, become the largest investment home county of the developing economy. The globalization strategy successfully inspired more and more Chinese firms taking parts in the international investment. Location choice is the first problem they have to consider for it directly effects the profit of business. This paper uses the theoretical and empirical methods to find out the basic rule and character of location decisions. It turns out that the potential market, system environment, tariff and non-tariff barrier can decrease the cut-off productivity of host-country, at the meantime attracts more Chinese firms to invest. Furthermore, policy suggestions on firms and government are provided to promote the stability and healthy development of China’s OFDI.