Corporate-Government Relationship And The Distribution Of Foreign Direct Investment In China

Early in the beginning of the1980s, the separation of corporation and government became one of the basic targets in our economic transformation policy. But after nearly twenty years, the corporate-government relationship is still vague and the two sides can’t identify their own role yet. At the same time, because of their non-resident character, the operation of foreign direct investment is obviously influenced by local corporate-government relationship. With the increasing of foreign direct investment in China, more and more domestic researches focus on the determinants of the distribution of foreign direct investment in China, including geographic factors, comparative advantage factors, certain institutional factors and etc. However, there exists a significant field that only a few researches have got access to, that is the influence of corporate-government relationship on the distribution of FDI in Mainland. Corporate-government relationship is widely considered as an important element in corporate operation, but few theoretical researches put an eye on its influence on FDI distribution. What’s more, the existing literature on this topic is limited to qualitative analysis and descriptive data analysis, leaving systematic econometric and theoretical research behind.In this dissertation, the author begins with theoretical discussion on corporate-government relationship. Based on the theoretical discussions, the author builds up multi-liner semi-logarithm model to analyze this issue. The data used to estimate the influence of corporate government relationship on FDI distribution is provincial level data in mainland, which covers the period2003-2005. The data covers two aspects:the amount of dollars invested and the number of corporations established. Furthermore, the author has also analyzed the impact of corporate-government relationship on the proportions that a province’s FDI investment and number of FDI corporations weight that of the whole country.From the results of theoretical discussion and econometric analysis, the author has worked out that corporate-government relationship significantly and actively influences the distribution of foreign direct investment in China."Actively" means that loosing the local corporate-government relationship will bring about more foreign direct investment and agree with the trend of marketization in China. Further econometric study shows that there doesn’t exists significant relations between corporate-government relationship and the proportion of a province’s FDI in China, both from views of number of corporations registered and money invested.At last, relying on the theoretical discussion and econometric analysis the author has conducted, the author proposes the following policy suggestions:by means of loosing the local corporate-government relationship, we are able to attract more foreign direct investment and promote our marketization process. On the other hand, if one province wants to raise its FDI proportion of the country, a single modulation on corporate-government relationship won’t make any difference, unless systematic supporting policies are put into practice.