Economy Agglomeration, Geographical Conditions And Foreign Investment Location

The regional distribution of FDI is affected by lots of factors, among which the economic agglomeration and geographical are worth studying. The inflow of FDI will enlarge the scale of production. Because of increasing returns to scale, this erea will have more attraction of FDI. And then the scale of production will be larger. So there is circular and cumulative causation between FDI and economic agglomeration. The geographic condition affects the location of FDI through precip itation and the distance between economic centers. If one city has more precipitation, there will be less transport costs. And if one city has sh orter distance with economic centers, there will be lower costs. Then if one city has more land to use, there w ill be lower land costs. Based on the situation analysis of economic agglomeration and the location of FDI, the economic agglomeration and location of FDI shows a seriously imbalance. And the location of FDI appears to the same tendency with precipitation. Using the theory of manufacture cost and profi t to analyse how economic agglomeration and geographic position influence the location of FDI, the resu lts shows that economic agglormeration, precipitation, distance and height are some of the important factors of the FDI location. Then this article uses the related data of China’s cities from 2000 to 2012 to build the panel data modal. The empirical results show that economic agglomeration and precipitation has a significant positive im pact on the location of FDI. The distance to economic centers and height has a significant negative impact on the location of FDI. Due to the difference of economic agglomeration, precipitation and distance to economic centers between different cities, the location of FDI in China shows a seriously imbalance. So the cities should play different part based on area features to attract FDI. Then the area should accumulate the advantage of economic agglomeration to increase the level of FDI. And cities should build the center of the region to introduce advanced science and technology. Based on the policy proposal below, China should exert the guidance function of FDI to promote the increasing of economic growth.