An Empirical Research On FDI Diversion Effect

FDI diversion effect is an important aspect of the multilateral nature of foreigndirect investment. The FDI inflows into a specific host country may crowd out FDIinto other related countries and regions, in terms of both absolute amount andrelative share.By introducing a new proxy for "China Effect", This paper uses FDI locationmodel , examines the impact that China has been exerting on other 8 Southeast Asianregions during the process of absorbing Japan FDI and US FDI since late 1980's. Theempirical result reveals that there exists a significant FDI diversion effect, that therapid growth of China's FDI inflows and the promotion of its share in overall FDImade other regions suffer share losses. In addition to the empirical result, this paperfurther explores the industry mode of the FDI diversion effect.