Governance Infrastructure and Location of Foreign Direct Investment in the Peopleâ€™s Republic of China
Standard neoclassical theory predicts that capital should flow from rich to poor countries. However, Lucas (1990) points out that these capital flows are actually very modest, and nowhere near the levels predicted by theory. The Peopleâ€™s Republic of China (PRC) now receives more foreign capital in the form of foreign direct investment (FDI) than any other country, but statistics indicate that this inward FDI flows unequally to different regions. In this study, using hand-collected data on FDI for more than 200 cities, we examine whether the Lucas paradox of capital exists within the PRC. We adopt the dynamic panel data generalized method of moments (GMM) framework to avoid the potential endogeneity issue. Using both provincial- and city-level data, the empirical results show that FDI flows to the PRC, as proxied by total gross domestic product (GDP) and per capita GDP, favor rich regions over poor regions. We also find that regional economic growth has no significant impact on FDI. These findings support the existence of the Lucas paradox in the PRC. We demonstrate that this paradox is not driven by government policy and explore possible explanations for its existence.
|Date of creation:||Nov 2011|
|Contact details of provider:|| Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200|
Web page: http://www.eaber.org
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:eab:macroe:23212. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.