Location Determinants of Foreign Direct Investment in China Open Access

Abstract

The research reported in this paper uses a panel dataset to empirically investigate the location determinants of foreign direct investment in China. In particular, the novelty of this paper is adopting recent data of 35 provinces in China from 2000 to 2010 and using three different econometrics techniques to explore the relationships between foreign direct investment level and thirteen different explanatory factors. Research outcomes suggest that previous year's FDI level, market size (RGDP), openness of a province (EGDP), labor quality (UNI) and geographical location (COASTAL) have a positive effect on level of FDI in a province. It is also found that per capita GDP (PGDP) and trade-to-GDP (TGDP) will negatively impact realized FDI level, while illiteracy rates and realized FDI correlate positively. Although the last three findings are not intuitively clear at first sight, additional thorough analysis based on previous studies demonstrates that the interesting results to be plausible and indicates that China may be at the third stage of investment development path.

Table of Contents

Content

1. Introduction 1

2. Literature Review 2

3. Data Analysis 10

4. Research Methodology and Hypothesis Formation 14

5. Empirical Analysis 21

6. Results 23

7. Conclusions 26

8. References 28

9. Appendix 30

List of Figures

1. The The Trend of FDI inflows into China from 1979 to 2011List of Tables 30
2. Chinese Inflow and Outflow FDI Summary 30
3. Top 10 Countries with Most FDI Inflows 31
4. 2012 OECD FDI Regulatory Restrictiveness Index 31
5. The relationship between RR Index and Market Openness 32
6. Shares of Realized FDI in China by Sources (2009) 32
7. Hausman Test 33
8. LM Test 33
9. Residuals Histogram of Model 1,2,3; Model 4,5,6 and Model 7,8,9 34

List of Tables

1. Growth Rates of Global GDP, GRCF, Trade, Employment and FDI 37
2. Summary of Form of Market Entry 37
3. Accumulated realized FDI in China by Sources of Countries and Economies 37
4. Accumulated FDI Inflows in China by Region and Provinces 38
5. FDI Inflows 1999-2010 by Province/ Municipality 39
6. Lists of Special Economic Zones and Open Economic Zones 40
7. Industrial Structure of FDI Firms in Manufacturing by Total Assets 40
8. Sectoral Distribution of Realized FDI in China 41
9. The Determinants of Location Decision of Inward FDI in China 42
10. Summary of Selected Studies on the Determinants of FDI 43
11. Correlation Matrix 44
12. Summary of all Models and Residuals Summary 45

About this Honors Thesis

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• Permission granted by the author to include this thesis or dissertation in this repository. All rights reserved by the author. Please contact the author for information regarding the reproduction and use of this thesis or dissertation.

School	Emory College
Department	Economics
Degree	BA
Submission	Honors Thesis
Language	English
Research Field	Economics, Finance
Keyword	China FDI Investment
Committee Chair / Thesis Advisor	Zha, Tao, Emory University
Committee Members	Jacho-Chavez, David, Emory University Takeda, Noriko, Emory University

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