IDEAS home Printed from https://ideas.repec.org/a/bla/chinae/v29y2021i2p49-72.html
   My bibliography  Save this article

Dialect Diversity and Foreign Direct Investment in China

Author

Listed:
  • Wei Feng
  • Yanrui Wu
  • Yue Fu

Abstract

This paper examines the relationship between dialect diversity and foreign direct investment (FDI) using a dataset of 230 Chinese cities for the period 2000–2014. We find that dialect diversity and FDI absorption are negatively correlated. However, this negative relationship disappears gradually over time. Several underlying mechanisms are identified. In particular, it is found that dialect diversity impedes human capital development and hence obstructs FDI absorption. Our results also show that there are threshold and spatial spillover effects. This research increases knowledge of FDI location choice and has implications for foreign investment policymaking.

Suggested Citation

  • Wei Feng & Yanrui Wu & Yue Fu, 2021. "Dialect Diversity and Foreign Direct Investment in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(2), pages 49-72, March.
    • Handle: RePEc:bla:chinae:v:29:y:2021:i:2:p:49-72
    DOI: 10.1111/cwe.12370
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/cwe.12370
    Download Restriction: no
    File URL: https://libkey.io/10.1111/cwe.12370?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. W. Travis Selmier & Chang Hoon Oh, 2013. "The Power of Major Trade Languages in Trade and Foreign Direct Investment," Review of International Political Economy, Taylor & Francis Journals, vol. 20(3), pages 486-514, June.
    2. Herrmann-Pillath, Carsten & Libman, Alexander & Yu, Xiaofan, 2014. "Economic integration in China: Politics and culture," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 470-492.
    3. Steven Globerman & Daniel Shapiro, 2003. "Governance infrastructure and US foreign direct investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(1), pages 19-39, January.
    4. Thangavelu, Shandre M. & Narjoko, Dionisius, 2014. "Human capital, FTAs and foreign direct investment flows into ASEAN," Journal of Asian Economics, Elsevier, vol. 35(C), pages 65-76.
    5. Falck, Oliver & Heblich, Stephan & Lameli, Alfred & Südekum, Jens, 2012. "Dialects, cultural identity, and economic exchange," Journal of Urban Economics, Elsevier, vol. 72(2), pages 225-239.
    6. Nasser Ary Tanimoune & Cécile Batisse & Mary-Françoise Renard, 2013. "Foreign Direct Investment across China: what should we learn from spatial dependences?," CERDI Working papers halshs-00878888, HAL.
    7. Martijn Boermans & Hein Roelfsema & Yi Zhang, 2011. "Regional determinants of FDI in China: a factor-based approach," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 9(1), pages 23-42.
    8. Elizabeth Asiedu, 2006. "Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability," The World Economy, Wiley Blackwell, vol. 29(1), pages 63-77, January.
    9. Victor Ginsburgh & Shlomo Weber, 2014. "Culture, Linguistic Diversity, and Economics," ULB Institutional Repository 2013/277517, ULB -- Universite Libre de Bruxelles.
    10. Guido Tabellini, 2010. "Culture and Institutions: Economic Development in the Regions of Europe," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 677-716, June.
    11. Quamrul Ashraf & Oded Galor, 2011. "Cultural Diversity, Geographical Isolation, and the Origin of the Wealth of Nations," NBER Working Papers 17640, National Bureau of Economic Research, Inc.
    12. Melitz, Jacques, 2008. "Language and foreign trade," European Economic Review, Elsevier, vol. 52(4), pages 667-699, May.
    13. Edward P. Lazear, 1999. "Culture and Language," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 95-126, December.
    14. Ginsburgh, Victor & Ortuño-Ortín, Ignacio & Weber, Shlomo, 2007. "Learning foreign languages: Theoretical and empirical implications of the Selten and Pool model," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 337-347.
    15. Alberto Bisin & Thierry Verdier, 2000. ""Beyond the Melting Pot": Cultural Transmission, Marriage, and the Evolution of Ethnic and Religious Traits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 955-988.
    16. Du, Julan & Lu, Yi & Tao, Zhigang, 2012. "Institutions and FDI location choice: The role of cultural distances," Journal of Asian Economics, Elsevier, vol. 23(3), pages 210-223.
    17. Barro, Robert J & Sala-i-Martin, Xavier, 1997. "Technological Diffusion, Convergence, and Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 1-26, March.
    18. Yuko Kinoshita & Nauro F. Campos, 2003. "Why Does Fdi Go Where it Goes? New Evidence From the Transition Economies," IMF Working Papers 2003/228, International Monetary Fund.
    19. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Economic Convergence and Economic Policies," NBER Working Papers 5039, National Bureau of Economic Research, Inc.
    20. Romer, Paul M., 1990. "Human capital and growth: Theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 251-286, January.
    21. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September.
    22. Chen, Zhao & Lu, Ming & Xu, Le, 2014. "Returns to dialect," China Economic Review, Elsevier, vol. 30(C), pages 27-43.
    23. Quamrul Ashraf & Oded Galor, 2011. "Cultural Diversity, Geographical Isolation, and the Origin of the Wealth of Nations," Department of Economics Working Papers 2011-15, Department of Economics, Williams College.
    24. Oh, Chang Hoon & Travis Selmier, W. & Lien, Donald, 2011. "International trade, foreign direct investment, and transaction costs in languages," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(6), pages 732-735.
    25. Harry Garretsen & Jolanda Peeters, 2009. "FDI and the relevance of spatial linkages: do third-country effects matter for Dutch FDI?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(2), pages 319-338, July.
    26. Luis R Gómez-Mejia & Leslie E Palich, 1997. "Cultural Diversity and the Performance of Multinational Firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(2), pages 309-335, June.
    27. Majocchi, Antonio & Presutti, Manuela, 2009. "Industrial clusters, entrepreneurial culture and the social environment: The effects on FDI distribution," International Business Review, Elsevier, vol. 18(1), pages 76-88, February.
    28. Bryan S. Graham & Jinyong Hahn & Alexandre Poirier & James L. Powell, 2015. "Quantile Regression with Panel Data," NBER Working Papers 21034, National Bureau of Economic Research, Inc.
    29. Falck, Oliver & Heblich, Stephan & Lameli, Alfred & Südekum, Jens, 2012. "Dialects, cultural identity, and economic exchange," Journal of Urban Economics, Elsevier, vol. 72(2), pages 225-239.
    30. Oded Galor & Quamrul Ashraf, 2007. "Cultural Assimilation, Cultural Diffusion and the Origin of the Wealth of Nations," Working Papers 2007-3, Brown University, Department of Economics.
    31. Noorbakhsh, Farhad & Paloni, Alberto & Youssef, Ali, 2001. "Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence," World Development, Elsevier, vol. 29(9), pages 1593-1610, September.
    32. Blanc-Brude, Frédéric & Cookson, Graham & Piesse, Jenifer & Strange, Roger, 2014. "The FDI location decision: Distance and the effects of spatial dependence," International Business Review, Elsevier, vol. 23(4), pages 797-810.
    33. Lu Jiang & Qiangbing Chen & Yali Liu, 2010. "FDI and the change of the Chinese culture," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 37(2), pages 101-118, January.
    34. Julan Du & Yi Lu & Zhigang Tao, 2008. "FDI location choice: agglomeration vs institutions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 92-107.
    35. Soo Khoon Goh & Koi Nyen Wong, 2010. "Malaysia’s Outward FDI: The Effects of Host Market Size and Home Government Policy," Monash Economics Working Papers 33-10, Monash University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Feng, Wei & Yuan, Hang, 2023. "The impact of medical infrastructure on regional innovation: An empirical analysis of China's prefecture-level cities," Technological Forecasting and Social Change, Elsevier, vol. 186(PA).
    2. Wang, Jie & Long, Zhineng & Chen, Liang & Li, Wanli, 2024. "How does linguistic diversity matter? The case of trade credit," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 333-350.
    3. Shangpu Li & Ye Jiang & Biliang Luo & Xiaodan Zheng, 2024. "The Impact of Dialect Diversity on Rent-Free Farmland Transfers: Evidence from Chinese Rural Household Surveys," Land, MDPI, vol. 13(2), pages 1-22, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nielsen, Bo Bernhard & Asmussen, Christian Geisler & Weatherall, Cecilie Dohlmann, 2017. "The location choice of foreign direct investments: Empirical evidence and methodological challenges," Journal of World Business, Elsevier, vol. 52(1), pages 62-82.
    2. Xiong, Jiacai & Yang, Zelin & Wang, Xin & Chan, Kam C., 2023. "Does dialect diversity affect entrepreneurial activities? Evidence from China," Economic Modelling, Elsevier, vol. 128(C).
    3. Mark Gradstein & Moshe Justman, 2023. "Cultural and economic integration of immigrant minorities: Analytical framework and policy implications," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(6), pages 1337-1360, December.
    4. Herrmann-Pillath, Carsten & Libman, Alexander & Yu, Xiaofan, 2014. "Economic integration in China: Politics and culture," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 470-492.
    5. Gradstein, Mark & Justman, Moshe, 2019. "Immigration, Diversity and Growth," CEPR Discussion Papers 14008, C.E.P.R. Discussion Papers.
    6. Enrico Spolaore & Romain Wacziarg, 2013. "How Deep Are the Roots of Economic Development?," Journal of Economic Literature, American Economic Association, vol. 51(2), pages 325-369, June.
    7. Konara, Palitha & Wei, Yingqi, 2019. "The complementarity of human capital and language capital in foreign direct investment," International Business Review, Elsevier, vol. 28(2), pages 391-404.
    8. Melitz, Jacques & Toubal, Farid, 2014. "Native language, spoken language, translation and trade," Journal of International Economics, Elsevier, vol. 93(2), pages 351-363.
    9. Timo Boppart & Josef Falkinger & Volker Grossmann & Ulrich Woitek & Gabriela W�thrich, 2008. "Qualifying Religion: The Role of Plural Identities for Educational Production," IEW - Working Papers 360, Institute for Empirical Research in Economics - University of Zurich.
    10. Maria Rosaria Carillo & Vincenzo Lombardo & Alberto Zazzaro, 2019. "The rise and fall of family firms in the process of development," Journal of Economic Growth, Springer, vol. 24(1), pages 43-78, March.
    11. Alberto Alesina & Johann Harnoss & Hillel Rapoport, 2016. "Birthplace diversity and economic prosperity," Journal of Economic Growth, Springer, vol. 21(2), pages 101-138, June.
    12. Olsson, Ola & Paik, Christopher, 2016. "Long-run cultural divergence: Evidence from the Neolithic Revolution," Journal of Development Economics, Elsevier, vol. 122(C), pages 197-213.
    13. Enrico Spolaore & Romain Wacziarg, 2016. "War and Relatedness," The Review of Economics and Statistics, MIT Press, vol. 98(5), pages 925-939, December.
    14. Fredriksson, Per G. & Mohanty, Aatishya, 2021. "Sunlight and Culture," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 757-782.
    15. Guido Tabellini, 2007. "Institutions and Culture," Working Papers 330, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    16. Galasso, Alberto & Comino, Stefano & Graziano, Clara, 2017. "The Diffusion of New Institutions: Evidence from Renaissance Venice's Patent System," CEPR Discussion Papers 12102, C.E.P.R. Discussion Papers.
    17. repec:hal:wpaper:hal-03808732 is not listed on IDEAS
    18. Lindner, Ines & Strulik, Holger, 2014. "From tradition to modernity: Economic growth in a small world," Journal of Development Economics, Elsevier, vol. 109(C), pages 17-29.
    19. Doepke, Matthias & Zilibotti, Fabrizio, 2014. "Culture, Entrepreneurship, and Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 1-48, Elsevier.
    20. Yuriy Gorodnichenko & Gerard Roland, 2017. "Culture, Institutions, and the Wealth of Nations," The Review of Economics and Statistics, MIT Press, vol. 99(3), pages 402-416, July.
    21. Hong Hiep Hoang & Cong Minh Huynh & Nguyen Minh Huy Duong & Ngoc Hoe Chau, 2022. "Determinants of foreign direct investment in Southern Central Coast of Vietnam: a spatial econometric analysis," Economic Change and Restructuring, Springer, vol. 55(1), pages 285-310, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:chinae:v:29:y:2021:i:2:p:49-72. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/iwepacn.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.