The Location Of FDI

Since the 1990s, China has attracted the most amount of FDI among developing countries. More than 20% of the total FDI to these countries had flowed into the market of China. We can clearly see that direct investment taken by MNE has a positive impact on the development of our country, such as promoting the development of the export-oriented economy, helping China emerging into globalization, expanding employment channels and improving our country's industrial structure as well as corporate governance, etc. Therefore, FDI has become an indispensable development factor during the economic growth of China. Therefore, studying problems about the location choice of FDI in China will be a meaningful work. Firstly, it can help us deepen the understanding of the impact of the agglomeration effect on the economic growth and the location of investment; secondly, it is instructive for us to better understand the imbalance of the regional economic development, the widening income gap among different region of China and the adjustment of policy from the government; finally, it can help us to answer such hot-spot questions as whether the adjustment of preferential tax policies(two taxes merger policy) will effect the foreign investment in China.Studying the characteristics of FDI distributions among Chinese provinces, this thesis first makes macro and microeconomic analysis on FDI location with economics theory. Then, this paper set up a panel model to study recent 10-year datum from 30 provinces, municipalities and autonomous regions. After that, we systemically study the influence of agglomeration effect, investment environments, cost and traditional market factors on the choice of FDI location; especially we add the index of investment environments and preferential policies into our model to make it more rational. Moreover, we conclude that: the agglomeration factor affects the location of FDI in a large extent; the difference of investment environments among different districts, especially the gaps between market economy development and enjoying preferential policies, can mainly explain the amount of its attracting FDI; factors such as the size of market, the status of infrastructure and the cost of labor, all evidently affect the location of FDI. At last, combining with the empirical result, we offer different policy suggestions to the central and local governments at all levels.