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

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Author Info
Mei Wen ()
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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Paper provided by Australian National University, Economics RSPAS in its series Departmental Working Papers with number 2005-12.

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

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

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
R11 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Analysis of Growth, Development, and Changes

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  1. Liu, Xiaohui & Burridge, Peter & Sinclair, P J N, 2002. "Relationships between Economic Growth, Foreign Direct Investment and Trade: Evidence from China," Applied Economics, Taylor and Francis Journals, vol. 34(11), pages 1433-40, July. [Downloadable!] (restricted)
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  3. Chakraborty, Chandana & Basu, Parantap, 2002. "Foreign Direct Investment and Growth in India: A Cointegration Approach," Applied Economics, Taylor and Francis Journals, vol. 34(9), pages 1061-73, June. [Downloadable!] (restricted)
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