Determinants of Regional Distribution of FDI Inflows across China’s Four Regions

Abstract

This paper performs an empirical assessment of China’s inward FDI by analysing the relative importance of the potential determinants of FDI inflows across the four regions of China for the period 2001-2009. The determinants examined are: Market size, labour cost, labour quality, physical infrastructure development, telecommunication, degree of economic openness and government incentives to attract FDI. Our paper employs a multiple regression model for each region and then compares the results across four regions. The results indicate a mixed picture, for example we find that market size holds priority for FDI inflows into coastal region and northeast regions while the degree of openness is the most important determinant for FDI inflows in central region. The labour quality has no effect in central region but has a positive impact on FDI inflows into coastal and northeast regions. These results have important implications for China’s regional policy makers as they can help them identify the kinds of industries which respond to specific drivers and identify regional social economic characteristics which are more attractive to particular FDI inflows.