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Foreign Direct Investment, Regional Geographical and Market Conditions, and Regional Development: A Panel Study on China

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  • Mei Wen

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    Abstract

    This paper uses regional panel data to investigate the mechanism of how FDI has contributed to China’s regional development through quantifying regional marketization level. It is found that FDI inflow generates a demonstration effect in identifying regional market conditions for investment in fixed assets and hence affects industrial location. In addition, its effects on regional export and regional income growth varied across east, central and west China since the second half of the 1990s, depending on FDI-orientation in different regions. In east China, geographical advantage in export attracts FDI inflow and FDI promotes export. In addition, rise of FDI-GDP ratio increases regional share in industrial value added in east China. These effects contribute positively to regional income growth in east China although there is a direct crowding out effect between FDI and domestic investment (as input) in growth. In contrast, the negative impact of FDI inflow in central China on regional export orientation weakens its contribution to regional income growth. Furthermore, contribution of improvement of market mechanism to regional development is evidenced in attracting FDI, in promoting export and directly contributing to regional income growth.

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    File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2005/wp-econ-2005-12.pdf
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    Bibliographic Info

    Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2005-12.

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    Length: 32 pages
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:pas:papers:2005-12

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    Keywords: Export-oriented FDI and import substitute FDI; marketization; industrial location; and regional growth;

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    1. Prema-chandra Athukorala & Satish Chand, 1998. "Trade Orientation and Productivity Gains from International Production: A Study of Overseas Operations of US Multinationals," Departmental Working Papers 1998-02, The Australian National University, Arndt-Corden Department of Economics.
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