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Where a contract is signed determines its value: Chinese provincial variation in utilized vs. contracted FDI flows

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  • Abigail S. Hornstein

    ()
    (Department of Economics, Wesleyan University)

Abstract

There are major differences between ex ante corporate investment plans and ex post investments. The case of China is useful for understanding this problem because there is substantial time series and cross sectional variation in the ratio of utilized to contracted FDI (UC ratio), which is less than one in most province-year observations. Provinces may believe that they are rewarded for reporting higher levels of contracted FDI, which would lead to lower UC ratios and higher policy incentives in subsequent years. Alternatively, provinces may be rewarded for reporting data more accurately, which would lead to higher UC ratios and policy incentives in subsequent years. Empirical analysis supports the second, institutional theory and suggests that provinces may increase their rate of utilizing pledged FDI by strengthening their legal systems and reducing government bureaucracy.

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File URL: http://dx.doi.org/10.1016/j.jce.2010.10.002
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Bibliographic Info

Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2009-006.

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Length: 16 pages
Date of creation: Oct 2009
Date of revision:
Publication status: Published in the Journal of Comparative Economics
Handle: RePEc:wes:weswpa:2009-006

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Keywords: Foreign direct investment (FDI); China; Policy; Institutions;

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