Study On The Influence And Mechanism Of Official Change On Foreign Direct Investment

Since the reform and opening up,China has been persisting in developing an export-oriented economy and expanding the inflow of foreign direct investment.Foreign direct investment also promotes the development of Chinese economy with its more advanced technology.Local officials-mayors and party secretaries of prefecture-level cities-regard the introduction of foreign direct investment as an important goal in order to promote the development of their districts.In addition,in order to improve the governance ability and level of local government officials,the central government has constantly reformed and improved the personnel system of leading cadres,and it has become normal for local officials to constantly change due to promotion,exchange or expiration of tenure.Changes in local officials create policy uncertainty and risk of discontinuity.What impact will this have on foreign direct investment? In order to explore this problem,this thesis uses the change data of mayors and party secretaries of prefecture-level cities from 2003 to 2018 to carry out research with the help of two-way fixed effect model.The demonstration of this thesis is divided into the following steps.First,in order to explore the impact of the change of officials in prefecture-level cities on foreign direct investment,this thesis carries out benchmark regression between the change of officials and foreign direct investment respectively.Second,in order to better understand the impact of uncertainty caused by the change of officials in prefecture-level cities on foreign direct investment,this thesis measures the uncertainty.Thirdly,in order to solve the endogeneity problem,this thesis takes "the age and tenure of the last government official" as the instrumental variable to conduct the endogeneity test.Fourthly,in order to test the robustness of the results,the following methods were adopted in this thesis:(1)In order to prevent the endogeneity and homogeneity between the control variable and the explained variable,the regression of the control variable was performed with a lag of one period;(2)Since the 2008 financial crisis will have a negative impact on foreign direct investment,the period from 2008 to 2010 is excluded in this thesis;(3)The core explanatory variable,the change of officials,is regressed with a lag of one period.If the regression result with a lag of one period is not significant,it indicates that the negative impact of foreign direct investment is caused by the change of officials,which will support the conclusion of this thesis.Fifth,in order to explore the personal characteristics of officials and the impact of different regions on foreign direct investment,the following heterogeneity tests were carried out in this thesis:(1)Whether officials are older than 55,because the age of officials is an important factor affecting the promotion of officials;(2)Heterogeneity test of officials’ gender,educational background and professional background;Sixth,in order to explore the intermediate mechanism of the influence of official change on foreign direct investment,this thesis conducts the following mechanism test:(1)Since the degree of official administrative intervention will affect the marketization,the region with a high degree of marketization will attract more foreign direct investment,this thesis divides the marketization index into high and low groups for mechanism test;(2)China has a vast territory,and the change of officials in different geographical locations will have different impacts on foreign direct investment.Therefore,this thesis divides China into three regions to test the mechanism;(3)Changing officials can quickly obtain information of new jurisdictions with the help of digital technology and make correct decisions for the introduction of foreign direct investment,which can alleviate the negative impact of changing officials on foreign direct investment to a certain extent.Therefore,this thesis conducts a mechanism test on the development level of digital economy;(4)In areas with low average topographic relief slope,it is easier for changing officials to introduce foreign direct investment by increasing transportation infrastructure construction and accelerating industrial agglomeration,so as to alleviate the negative impact of changing officials on foreign direct investment.Therefore,average topographic relief slope is used in this thesis for mechanism test.The conclusions of this thesis are as follows: first,the change of mayors and party secretaries of prefecture-level cities will bring negative effects on foreign direct investment;Second,the negative impact is mainly caused by the uncertainty risk caused by the change of officials,and the greater the degree of uncertainty,the greater the negative impact;Thirdly,the younger the official is,the more likely it is to mitigate the negative impact of the official change on foreign direct investment.Fourthly,areas with high marketization index can slow down the negative impact of official change on foreign direct investment.Compared with the eastern region,the change of officials in the central and western regions has a greater negative impact on FDI.Fifth,accelerating the development of digital economy,increasing the construction of transportation infrastructure,and further improving the level of industrial agglomeration can mitigate the negative impact of the change of officials on foreign direct investment.The contribution of this thesis is mainly reflected in the academic value and social value.In terms of academic value,firstly,this thesis has enriched the literature on foreign direct investment related to official change;Second,there are few literatures on the influence mechanism of uncertainty caused by official change on foreign direct investment.This thesis tries to explore the influence mechanism by using marketization index,different regions of East and West,development level of digital economy,and average topographic relief slope.In terms of social value,this thesis evaluates the impact of official change on foreign direct investment by taking the uncertainty brought by official change as the entry point.It is beneficial to reduce the negative impact on foreign direct investment and provide policy suggestions with practical significance for relevant departments.