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Governance Infrastructure and Location of Foreign Direct Investment in the People’s Republic of China


  • He, Jia

    (Asian Development Bank Institute)

  • Rui, Oliver M.

    (Asian Development Bank Institute)

  • Zha, Xiaolei

    (Asian Development Bank Institute)


In this study, using hand-collected data on FDI for more than 200 cities, the authors examine whether the Lucas paradox of capital exists within the PRC by adopting 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 GDP and per capita GDP, favor rich regions over poor regions. They also find that regional economic growth has no significant impact on FDI. These findings support the existence of the Lucas paradox in the PRC.

Suggested Citation

  • He, Jia & Rui, Oliver M. & Zha, Xiaolei, 2011. "Governance Infrastructure and Location of Foreign Direct Investment in the People’s Republic of China," ADBI Working Papers 324, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0324

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    References listed on IDEAS

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    More about this item


    lucas-paradox; foreign direct investment; generalized method of moments; province-city-samples; government policy;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements


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