Agglomeration Economies Mechanism, External And Fdi In China's Industrial Area Location Choice

The reform and opening up policy since 1978 make the economy growth of coastal areas very fast, and now the economy of the southern and eastern coastal areas have been one part of the world economy, while the relatively backward inland areas are still in the edge of the world economy, and there is no evidence to prove that this gap would reduce. Economic development of China is very similar to that of FDI location in China. The distribution of FDI location in China is very different from that of the earlier years, while the distribution of FDI location in China is not balanced and this situation has been existed since the policy enforcement of attracting FDI and there seems to be no great changes.70% percent of the total FDI in China highly concentrates in three coastal areas which are the Yangtze River Delta, Pearl River Delta and the Bohai region while the percent of FDI in the western inland areas is less than 10%.Since 1990s, the clustering and unbalance of the FDI location in China had caused widespread concern. Why FDI has such an obvious location preferences? What is the mechanism of FDI in the regional concentration? What factors would change the situation of the regional concentration of FDI in China?The new economic geography theory Represented by Krugma(1990,1998) provides a new theoretical basis and a new research direction for the understanding of agglomeration of FDI in China. According to the point of the new economic geography scale economies provide incentives for the concentration and sustained agglomeration of the enterprises (Dixit & Stigitz,1977; Fujita & Thissa,1996; Krugman,1996). Externality arising from agglomeration economy is an important factor in location choice. NEG is very different from the traditional theories that explain the location decisions and the motivations of FDI from the point of maximizing their profits and the aiming of greater operational efficiency (Hymer, 1976; Kindleberger,1970).With the rise of research and extensive application of the new economic geography theory geographic factors being considered as the key external factors in attracting FDI, this theory provides a theoretical framework and micro-level evidences for the analysis of FDI location.Geographical proximity can enhance inter-firm linkages (Scott,1988), which means that if local enterprises and FDI enterprises adjacent to each other domestic enterprises and foreign-invested enterprises may have more relevance. These studies provide a new perspective on how to more effectively attract FDI.The dissertation aims to answer the above questions. We try to give a new explanation to regional agglomeration of FDI in China from the view of agglomeration economy and externalities on the base of the methods of new economic geography. This paper fist describers the spatial distribution of FDI in China, then studies the mechanism of agglomeration of FDI through the combination of the theory and empirical analysis. The dissertation consists six parts, and each part is organized as follows.Chapter One is introduction, mainly introducing the motivation, attention, approach, structure, innovation and shortage ofthis paper.Chapter two is a survey of related research. In this section, we not only summed up the theoretical and empirical overview of the traditional multinationals, but also to gather economic, externalities associated with FDI relationship between the theoretical and empirical overview.Chapter three is the data description of the agglomeration of FDI in China from the perspective the whole China, the sub-national region and the prefecture. The data description shows that FDI in China locate mainly in the eastern, southern and northern coastal cities. In order to narrow the gap in FDI between the coastal areas and the inland areas and make the inland provinces attract more FDI, the central and local governments have taken various measures, but the situations still have been the same. At the same time FDI in China agglomerate mainly in the prefecture cities, because the scale economy and externalites in cities espically in the big cities are the main reasons that make FDI highly agglomerate.Chapter four describes the the mechanisms of agglomeration economies, externality and the uneven distribution of FDI. On the framework of NEG we study the economic mechanisms of FDI agglomeration. The basing on a panel data composed of 283 prefectures in China, we explore the causes of pecuniary externalites and other factors on the distribution of the FDI in cites. We arrived at the following conclusions that pecuniary externalites had significant positive effects on the location and the agglomeration of FDI in China. This discovery is in consistent with the conclusions of our model.Chapter five discusses the industry agglomeration, co-agglomeration and the location of manufacturing FDI in China. Firsly, we describe the agglomeration of manufacturing FDI, then we use the panel data of 2002-2007 to prove that it is very popular that FDI prefer to the location where upstream and downstream industries agglomerate in coastal provineces. This indicates that there are with-industry agglomeration and co-agglomeration in related industries aring from interaction and knowledge spillovers that is very attractive to FDI. It turned out that industries agglomeration between upstream and downstream firms played a significantly positive role in the industry location of FDI.Chapter six makes a summarization of this dissertation. This chapter summarizes our study and point out some proposals.To sum up, compared with the literature available, the innovations of this dissertation are summarized as follows:Firstly, this paper comprehensively and systemically describes spatial distribution of the FDI in China. Secondly, compared with the studies used province data, we used the prefecture panel data to examine the mechanism of agglomeration of FDI. Lastly, we use the two-digital indices in the provincial level in experiment estimation.