Research On The Impact Of China's Urban Business Environment On Attracting Foreign Direct Investmen

The Party Central Committee proposed to build a new development pattern of double cycle,which is a major strategic initiative based on China’s reality and promoting high-quality economic development,and foreign investment has an important position in building the new development pattern.Under the normalized situation of global prevention,foreign investment in the world has dropped significantly,but China has become the world’s largest foreign investment inflow country,with the actual amount of foreign investment utilized accounting for more than40% of the total GDP,and foreign investment has become a powerful pulling point for China’s economic growth.Therefore,this paper focuses on the primary factor of attracting foreign investment at present.With the improvement of transportation network and the advancement of technology,the focus of foreign-invested enterprises has gradually changed from cost and efficiency to business environment.2020 Doing Business report released by the World Bank,although China’s business environment ranking has risen to 31,the ranking only uses the relevant data of Beijing and Shanghai,which can hardly reflect the level of business environment of other cities in China.At present,the world is experiencing a great change that has not been seen in a century,and China proposes to accelerate the construction of a new development pattern,the core of which is to open up the blockage points of production,exchange,distribution and consumption.How to optimize China’s overall business environment and promote the free flow of production factors,while attracting FDI inflows,is of great significance to the construction of a modernized economic system.This paper firstly compares the relevant research results related to business environment,FDI and the relationship between them,summarizes the shortcomings of existing studies,and makes a hypothesis on the mechanism of business environment influencing FDI inflows through theoretical analysis.Secondly,we summarize the current situation of business environment and foreign direct investment in China,and find that market-seeking FDI dominates,while market-seeking foreign investors are more concerned about the factors of business environment.For the measurement of the business environment index,this paper uses principal component analysis to determine the weights of each indicator and observes the disparity of business environment levels in different cities through kernel density plots.At the empirical level,this paper uses the panel data of 267 cities in China from 2010 to 2019 as a sample to conduct an empirical study on the relationship between urban business environment and foreign direct investment to test the hypothesis 1 of this paper,which is that the improvement of business environment can positively promote the inflow of FDI.First,a two-way fixed-effects model is constructed for the benchmark regression to demonstrate the positive relationship between city business environment and FDI inflows,followed by robustness tests and heterogeneity analysis.Finally,we empirically test the influence mechanism of business environment on FDI inflow as hypothesized in this paper,i.e.,business environment optimization can attract FDI entry by improving governmentbusiness relationship and increasing entrepreneurs’ confidence in investment.The results of this paper show that:(1)the geographical location of a city and the policies it enjoys affect the level of its business environment to a certain extent.(2)The optimization of business environment has a significant positive impact on the inflow of foreign investment in each city in China.(3)There is a correlation mechanism between business environment and FDI.That is,business environment optimization can attract FDI inflow by improving the relationship between government and business;business environment optimization can attract FDI entry by improving entrepreneurs’ confidence in investment.Accordingly,this paper puts forward corresponding suggestions:(1)develop urban business environment according to local conditions.(2)Optimize the business environment of cities to attract high-quality foreign investment.(3)Establish a new type of government-business relationship to improve the confidence of foreign investors.The main innovations of this paper are:(1)There is little literature on the combination of business environment and foreign direct investment,and this paper fills the gap at the theoretical level to a certain extent.(2)Most of the studies on the relationship between business environment and FDI in the existing literature are based on the position of countries,and there are few studies on business environment and FDI inflow from the perspective of cities.(3)This paper proposes a hypothesis on the mechanism of business environment affecting FDI and explores it,and finally empirically verifies that the hypothesis is valid.That is,the optimization of business environment can attract FDI entry by improving the relationship between government and business and increasing the confidence of entrepreneurs to invest.