Regional Distribution Of FDI In China

Since Thunen brought forward agricultural location theory in the beginning of19thcentury, the location of industries has become a very hot topic for economicstudies. With the development of economic globalization, the degree of openness ofalmost every country in the world is promoted to some extent. FDI is playing a moreand more important role in global economy. How to attract FDI and guide the regionaldistribution of FDI so as to make it contribute to the development of nationaleconomy has seized the attention of both economic researchers and policymakers.China's utilization of FDI started after the reform and open. And with the progress ofreform and open, the scale and quality of FDI in China has been upgraded gradually.However, the regional distribution of FDI is not favorable. The distribution of FDI hasbeen unbalanced for a long time. Therefore, this dissertation tries to explaintheoretically the factors that influence China's regional distribution of FDI based onexisting FDI theories and industrial location theories, and construct econometricmodels to test empirically the significance of various locational factors on the basis ofwhich policy suggestions to promote rational regional distribution of FDI are broughtforward.First, the dissertation studies the process of utilization of FDI in China. With thebackground of stages of development of the national economy and the changinginternational environment, based on the total volume of FDI, China's utilization offoreign capital can be divided into three stages. Firstly, initiating and exploring stage(1979-1991). During this period, a few cities along the eastern coastal line started toattract foreign capital. However, in general, the total scale of FDI was still small. Andthe capacity to make use of FDI was very low. Secondly, growing stage (1992-2001).During this period, as China adopted various preferential policies to attract foreigncapital, the capacity to utilize FDI was promoted greatly. Eastern region owned thelargest share of FDI, proportion of FDI in the middle region grew moderately, whilethe western region was weak in attracting FDI. Thirdly, stable progressing stage(2002-now). The eastern region continued to seize the largest share of FDI. However,the difference in FDI level in the three major regions was shrinking, with the increasing of absolute FDI scale in each region.Second, this dissertation explained theoretically the factors that affect thelocation choices of industries. The dissertation pointed out that the location factors ofFDI can be grouped into policy factor, market factor, cost factor, social environment,agglomerative effects, etc. Policy factor mainly includes the degree of openness andregional policy; market factor is consisted of economic development, trade barriers,population, etc.; cost factor mainly include operating cost, risk cost, and humanresource cost; social environment factor mainly include humanity, innovation ability,urbanization level, etc.; agglomeration effect is consisted of the promotive effect toregional competitiveness and FDI's self-reinforcing effect. In addition, these factorsare not independent. They are interconnected. They constitute an organic systemwhich decides the regional distribution of FDI.Thirdly, the dissertation constructed econometric models to test empirically thesignificance of the location factors of FDI. A panel data of 29 provinces between 1992and 2010 was collected. In the model, the distribution of FDI was the dependentvariable, and economic scale, degree of openness, labor cost, communicationcapability, infrastructure, innovation ability, regional policy were the independentvariables. Moreover, in order to remove the negative effect of the difference in theunits of independent variables, at the same time making the parameters to beestimated more practical in economic meaning, the dissertation extended the basicmodel to include both the basic model and a log-linear model. In addition, thedissertation divided the total sample period into two stages according to thetransformation of FDI in China, 1992-2001 and 2002-2010, to estimate the effects ofvarious location factors.The empirical results showed that in the panel estimation of sample period1992-2010, both the basic model and log-linear model proved that economic scale,communication capability, infrastructure, regional innovation ability and regionalpolicy related positively to the regional distribution of FDI; while labor cost relatednegatively to it. The result of degree of openness factor is not statistically significant.But through comparing the provincial and regional data, we can see that the regionsthat have higher degree of openness usually owned the larger amount of FDI. Theresults of the two different stages showed that if we hold constant the normalinfrastructure level, the moderness of infrastructure became an important factor for FDI location. At the same time, as technology-intensive FDI in China was verylimited, cheap labor was still a major attraction to FDI.Finally, the dissertation brought forward policy suggestions for the governmentsto rationalize the spatial distribution of FDI based on the former theoretical andempirical analyses. Firstly, facilitate the economic development of the middle andwestern regions; secondly, promote the modernization of infrastructure of each region;thirdly, improve the regional innovation ability; fourthly, upgrade the pubic servicesfor FDI.