IDEAS home Printed from https://ideas.repec.org/a/eee/jcecon/v36y2008i3p412-429.html
   My bibliography  Save this article

Economic institutions and FDI location choice: Evidence from US multinationals in China

Author

Listed:
  • Du, Julan
  • Lu, Yi
  • Tao, Zhigang

Abstract

This paper examines the impacts of economic institutions, including property rights protection and contract enforcement, on the location choice of foreign direct investment. From a data set of 6288 US multinationals investing in various China's regions for the period of 1993-2001, it is found that US multinationals prefer to invest in those regions that have better protection of intellectual property rights, lower degree of government intervention in business operations, lower level of government corruption, and better contract enforcement. Our results are robust to alternative measures of economic institutions, different sub-samples, and different estimation strategies, and to the inclusion of control variables such as those for agglomeration economies, and other traditional factors of FDI location choice. Journal of Comparative Economics 36 (3) (2008) 412-429.

Suggested Citation

  • Du, Julan & Lu, Yi & Tao, Zhigang, 2008. "Economic institutions and FDI location choice: Evidence from US multinationals in China," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 412-429, September.
  • Handle: RePEc:eee:jcecon:v:36:y:2008:i:3:p:412-429
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0147-5967(08)00022-X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8o118937 is not listed on IDEAS
    2. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
    3. repec:hal:wpspec:info:hdl:2441/c8dmi8nm4pdjkuc9g8o118937 is not listed on IDEAS
    4. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
    5. Chu-Chia S. Lin & Ivan Png, 2003. "Monitoring costs and the mode of international investment," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 261-274, July.
    6. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    7. Sea‐Jin Chang & Sekeun Park, 2005. "Types of firms generating network externalities and MNCs' co‐location decisions," Strategic Management Journal, Wiley Blackwell, vol. 26(7), pages 595-615, July.
    8. 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.
    9. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
    10. Gao, Ting, 2005. "Labor quality and the location of foreign direct investment: Evidence from China," China Economic Review, Elsevier, vol. 16(3), pages 274-292.
    11. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    12. Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117, Elsevier.
    13. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    14. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross‐Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    15. Daron Acemoglu & Simon Johnson & James A. Robinson, 2002. "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1231-1294.
    16. Paulo Guimarães & Octávio Figueiredo & Douglas Woodward, 2004. "Industrial Location Modeling: Extending the Random Utility Framework," Journal of Regional Science, Wiley Blackwell, vol. 44(1), pages 1-20, February.
    17. Fung, K. C. & Iizaka, Hitomi & Parker, Stephen, 2002. "Determinants of U.S. and Japanese Direct Investment in China," Journal of Comparative Economics, Elsevier, vol. 30(3), pages 567-578, September.
    18. Cheng, Leonard K. & Kwan, Yum K., 2000. "What are the determinants of the location of foreign direct investment? The Chinese experience," Journal of International Economics, Elsevier, vol. 51(2), pages 379-400, August.
    19. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    20. Belderbos, Rene & Carree, Martin, 2002. "The Location of Japanese Investments in China: Agglomeration Effects, Keiretsu, and Firm Heterogeneity," Journal of the Japanese and International Economies, Elsevier, vol. 16(2), pages 194-211, June.
    21. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    22. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," Scholarly Articles 30725664, Harvard University Department of Economics.
    23. Bruce A. Blonigen & Christopher J. Ellis & Dietrich Fausten, 2019. "Industrial Groupings and Foreign Direct Investment," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 8, pages 265-289, World Scientific Publishing Co. Pte. Ltd..
    24. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    25. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387, October.
    26. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    27. Fung, K. C. & Iizaka, Hitomi & Siu, Alan, 2003. "Japanese direct investment in China," China Economic Review, Elsevier, vol. 14(3), pages 304-315.
    28. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-358, May.
    29. Shang-Jin Wei, 2000. "Local Corruption and Global Capital Flows," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 303-354.
    30. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-359, May.
    31. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    32. repec:hhs:iuiwop:430 is not listed on IDEAS
    33. Head, Keith & Ries, John, 1996. "Inter-City Competition for Foreign Investment: Static and Dynamic Effects of China's Incentive Areas," Journal of Urban Economics, Elsevier, vol. 40(1), pages 38-60, July.
    34. Coughlin, Cletus C & Terza, Joseph V & Arromdee, Vachira, 1991. "State Characteristics and the Location of Foreign Direct Investment within the United States," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 675-683, November.
    35. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
    36. Canfei He, 2002. "Information costs, agglomeration economies and the location of foreign direct investment in China1," Regional Studies, Taylor & Francis Journals, vol. 36(9), pages 1029-1036.
    37. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
    38. La Porta, Rafael & Lopez-de-Silanes, Florencio & Vishny, Robert & Shleifer, Andrei, 1999. "The quality of government," Scholarly Articles 30747160, Harvard University Department of Economics.
    39. Rohini Pande & Christopher Udry, 2005. "Institutions and Development:A View from Below," Working Papers 928, Economic Growth Center, Yale University.
    40. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    41. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-937, October.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. 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.
    3. 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.
    4. Andrea Ascani & Riccardo Crescenzi & Simona Iammarino, 2015. "Economic Institutions and the Location Strategies of European Multinationals in their Geographical Neighbourhood," LEQS – LSE 'Europe in Question' Discussion Paper Series 97, European Institute, LSE.
    5. Chen, George Shih-Ku, 2009. "Determinants of Taiwanese investment in China: An agglomeration economies-based perspective," MPRA Paper 13894, University Library of Munich, Germany.
    6. George Shih-Ku Chen, 2009. "Determinants Of Taiwanese Investment In China: An Agglomeration Economies-Based Perspective," Monash Economics Working Papers 01-09, Monash University, Department of Economics.
    7. 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.
    8. Andrea Ascani & Riccardo Crescenzi & Simona Iammarino, 2016. "Economic Institutions and the Location Strategies of European Multinationals in their Geographic Neighborhood," Economic Geography, Taylor & Francis Journals, vol. 92(4), pages 401-429, October.
    9. Lu, Yi & Png, Ivan P.L. & Tao, Zhigang, 2013. "Do institutions not matter in China? Evidence from manufacturing enterprises," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 74-90.
    10. Yamashita, Nobuaki & Matsuura, Toshiyuki & Nakajima, Kentaro, 2014. "Agglomeration effects of inter-firm backward and forward linkages: Evidence from Japanese manufacturing investment in China," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 24-41.
    11. Shima’a Hanafy, 2014. "Determinants of FDI Location in Egypt: Empirical Analysis Using Governorate Panel Data," Working Papers 875, Economic Research Forum, revised Nov 2014.
    12. Abdoul’ Mijiyawa, 2013. "Determinants of property rights institutions: survey of literature and new evidence," Economics of Governance, Springer, vol. 14(2), pages 127-183, May.
    13. Jonathan Jones, 2017. "Agglomeration economies and the location of foreign direct investment: A meta-analysis," Journal of Regional Science, Wiley Blackwell, vol. 57(5), pages 731-757, November.
    14. Costantini, Valeria & Liberati, Paolo, 2014. "Technology transfer, institutions and development," Technological Forecasting and Social Change, Elsevier, vol. 88(C), pages 26-48.
    15. Rohini Pande & Christopher Udry, 2005. "Institutions and Development:A View from Below," Working Papers 928, Economic Growth Center, Yale University.
    16. Licht, Amir N. & Goldschmidt, Chanan & Schwartz, Shalom H., 2007. "Culture rules: The foundations of the rule of law and other norms of governance," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 659-688, December.
    17. Tomohiko Inui & Toshiyuki Matsuura & Sandra Poncet, 2008. "The Location of Japanese MNC Affiliates: Agglomeration, Spillovers and Firm Heterogeneity," Working Papers 2008-24, CEPII research center.
    18. Chen, George Shih-Ku, 2009. "Agglomeration economies and the location of Taiwanese investment in China," MPRA Paper 13896, University Library of Munich, Germany.
    19. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
    20. Shima'a Hanafy, 2015. "Determinants of FDI Location in Egypt—Empirical Analysis Using Governorate Panel Data," MAGKS Papers on Economics 201513, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    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:eee:jcecon:v:36:y:2008:i:3:p:412-429. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622864 .

    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.