The Effect Of New Foreign Firms Entry On Manufacturing Industrial Sectors Productivity Under Localization Economies In Yangtze River Delta

Since the Yangtze River Delta(YRD)is one of the most developed zones in China,with its magnificent acceleration growth and large urban expansion.This economic region had seen an increased inflows of foreign firms investing in the area,in this study,attempts were made to investigate whether the new foreign firms’ inflows into the YRD was the main trigger for the productivity progress under the existence of localization economies,or whether the economy is depending on the local power.This study lies in being the first to take this relationship with the instrumental variable i.e.localization economies using two stages.Empirically,this study has used the most recent collected from the Chinese industrial enterprise’s database which contains micro-level data,we have created a city-manufacturing sectorial level with the application of TwoStage Least Square along with the Negative Binomial Regression and Fixed Effect Regression Model to check our concerns.Which are mainly,Localization economies has a positive effect on attracting more number of new foreign firms in the YRD in manufacturing industries,and secondly the number of new foreign firms in the YRD has a positive effect on total factor productivity of manufacturing industry.In conclusion,we found that localization economies of manufacturing sectors are a beneficial and preferable place to new foreign firms in most manufacturing sectors,except for the textile and other manufacturing sectors,this is empirically compatible with Vernon and Chintz effect.Whereas the average wages were affecting negatively as expected.Moreover,given the dummy variable,there was a negative effect of heavy industries because the foreign-owned heavy industries are concentrated more in periphery regions,in comparing with the cities in core regions that became the center of small industries adapted with area restriction and planning cities consideration.This result gives a general impression that investment in heavy industries began to move towards periphery areas far from the core areas according to coreperiphery theory.However,the indirect relationship of new foreign investments with the total factor manufacturing productivity through the instrument localization economies was not strong and even negative in most manufacturing sectors.As a result,local manufacturing power is likely to be mature enough to lead the economy to prosperity,rather than relying on the contributions of others.