The Effect Of The Externality Of Agglomeration On FDI Location Choice

As exchanges and global capital flows between countries become increasingly frequent and MNCS evolve into the core of international economic development gradually, analyzing the motives of foreign direct investment (FDI) has been a hot issue in theoretic study. Although FDI’s distribution has been developed from the original situation that FDI concentrates in southern coastal areas into the case that FDI is spreading to eastern coastal areas and northern coastal areas, there are still gaps between the vast mid-west hinterland and coastal areas in attracting FDI, which bring a threat to our country’s economy from developing concordantly、healthy and persistently.Since 1990s, the clustering and unbalance of the FDI location in China has caused widespread concern and became a generally accepted fact. Why is it does FDI has such an obvious location Preferences? What is the mechanism of FDI in the regional concentration? What are the key factors that would improve the situation of the regional concentration of FDI in China? These problems have become the forefront problem of FDI location selection, and also the starting point of this thesis research.First of all, this article will comb the theory and empirical research of FDI location selection comprehensively. Then through applying the basic theory of economics knowledge into sufficient use, this paper will create an analytical structure of FDI location choice from a perspective of the externality. From two main aspects: on the one hand, considering the Cost of Production Effect and the Market proximity Effect that generated from financial externality, FDI enterprises’s behavior of site selection will be affected, and drive the FDI surge into agglomeration area full of upward and downstream enterprise. In addition, under the simultaneous existence and affection of path dependence and circular accumulating causation action, a "self-reinforcing mechanism" will be formed. On the other hand, two main transmission mechanism, namely "the knowledge spillover effect" and "cluster innovation and learning" emerged from technological externalities, also play a role in FDI enterprises’s site decision-making behavior.Finally, depending on the relevant data, this article will describe the characteristic distribution of FDI in China. After putting provincial panel data from 2002 to 2012 in our country to practical use, carrying on empirical research and contrasting eastern western areas by means of correcting measuring model, the writer will arrive at some conclusions as shown below:1. The regression results in the western and eastern areas show financial externality is the significant influencing factor of FDI location choice, but there is a regional difference. Western area is easier to attract FDI by increasing market scale and foreign market access than eastern invest.2. For technical externalities, the western area are more likely to attract FDI investment by improving innovation ability and technology efficiency than the eastern area.3. The eastern is easier to attract FDI investment by improving the quality of the labor force than western region.