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Trade Costs and Location of Foreign Firms in China

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  • International Monetary Fund

Abstract

This study examines the determinants of entry into by foreign firms, using information on 515 Chinese industries at the provincial level during 1998-2001. The analysis, rooted in the new economic geography, focuses on market and supplier access within and outside the province of entry, as well as production and trade costs. The results indicate that market and supplier access are the most important factors affecting foreign entry. Access to markets and suppliers in the province of entry matters more than access to the rest of China, which is consistent with market fragmentation due to underdeveloped transport infrastructure and informal trade barriers.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/55.

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Length: 25
Date of creation: 01 Mar 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/55

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Keywords: Foreign direct investment; market access; fdi; trade costs; foreign investment; intermediate inputs; direct investment; foreign investors; domestic firms; international trade; imported inputs; tax incentives; foreign trade; trade barriers; market size; transport costs; aggregate demand; transport cost; investment climate; internal trade; market access effect; world investment; multinational enterprises; average tariff; domestic market; multinational firms; trade restrictions; zero profits; transnational corporations; trade data; foreign enterprises; internal trade barriers; dynamic effects; value of exports; regional integration; internal market; elasticity of substitution; market integration; barriers to entry; market fragmentation; international integration; imported intermediate; national market; high tariffs; positive externalities; tariff rates; investment decision; free entry; free trade; trade theory; duty drawbacks; imported intermediates; manufacturing sector; investment flows; multinational enterprise;

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