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Economic Fragmentation and FDI in China

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  • Yasheng Huang

Abstract

China is one of the most popular investment destinations in the world. This paper argues that FDI inflows into China are in fact driven by some fundamental inefficiencies in the Chinese economy. Specifically, one of the inefficiencies has to do with a high level of fragmentation of both goods and asset markets. This fragmentation increases demand for FDI both because market fragmentation makes indigenous Chinese firms uncompetitive and because market fragmentation creates more investment opportunities for the mobile foreign capital. This paper is a chapter from a larger book-length research project, tentatively entitled, Selling China: The Institutional Foundation of Foreign Direct Investment During the Reform Era.

Suggested Citation

  • Yasheng Huang, 2001. "Economic Fragmentation and FDI in China," William Davidson Institute Working Papers Series 374, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2001-374
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/39758/3/wp374.pdf
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    References listed on IDEAS

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    1. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
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    3. Xiaonian Xu & Yan Wang, 1997. "Ownership structure, corporate governance, and corporate performance : the case of Chinese stock companies," Policy Research Working Paper Series 1794, The World Bank.
    4. Qian, Yingyi & Xu, Chenggang, 1993. "The M-form hierarchy and China's economic reform," European Economic Review, Elsevier, vol. 37(2-3), pages 541-548, April.
    5. Lardy,Nicholas R., 1978. "Economic Growth and Distribution in China," Cambridge Books, Cambridge University Press, number 9780521219044, March.
    6. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    7. Pryor, Frederic L, 1972. "An International Comparison of Concentration Ratios," The Review of Economics and Statistics, MIT Press, vol. 54(2), pages 130-140, May.
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    Keywords

    FDI; capital market; transitional economies;

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