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Foreign Direct Investment in China: A Spatial Econometric Study

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  • Cletus C. Coughlin
  • Eran Segev

Abstract

Foreign direct investment (FDI) began to flow into China with advent of reforms in 1978. Following a period of relatively slow growth, FDI inflows to China picked up after 1990, as China surpassed every other nation but the United States in attracting foreign investment. In particular, coastal regions of China have received the bulk of FDI inflows to the country. In this paper, we use province-level data to explain the pattern of FDI location across China. We build upon previous research, introducing new potential determinants, using more recent FDI data, and incorporating spatial econometric techniques. In doing so, we test for potential econometric problems arising from the spatial pattern of the data, and correct for them by running more appropriate models. We find that economic size, labor productivity and coastal location attract FDI, while higher wages and illiteracy rates deter it. The transportation infrastructure variables we try are not found to have statistically significant relationships with the level of FDI inflows across provinces.
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Suggested Citation

  • Cletus C. Coughlin & Eran Segev, 2000. "Foreign Direct Investment in China: A Spatial Econometric Study," The World Economy, Wiley Blackwell, vol. 23(1), pages 1-23, January.
    • Handle: RePEc:bla:worlde:v:23:y:2000:i:1:p:1-23
    DOI: 10.1111/1467-9701.t01-1-00260
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    1. Broadman, Harry G. & Xiaolun Sun, 1997. "The distribution of foreign direct investment in China," Policy Research Working Paper Series 1720, The World Bank.
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