Regional Policy and Industrial Relocation in China: A Panel Data Analysis

An important part of Chinese economic development, especially of the Eastern Coastal provinces, has been the relocation of industry from Western countries. More recently, the Chinese Government has encouraged the development of Central, Western and Northern provinces and local governments in these regions have been making efforts to attract investment from companies from Eastern China. We investigate the factors that drive the investment decisions of such companies. Using data on the investment decisions of 498 listed Chinese companies headquartered in the provinces of Guangdong, Shanghai, Zhejiang and Jiangsu over the period 2000-2010, we estimate a Probit model to investigate the factors that drive their investment decisions. The model controls for market factors and firm-specific factors, We find strong positive effects on investment from the provision of both transport and communications infrastructure and strong negative effects from a higher proportion of state-owned enterprises and higher local government administrative expenses but no significant effect from taxation.