Ever‐transient FDI and ever‐polarizing regional development: Revisiting conventional theories of regional development in the context of China, Southeast and South Asia

Abstract

In this new age of globalization, regions attempt to attract foreign direct investment (FDI) in order to achieve regionally balanced development. We revisit existing theories of regional development and FDI by analyzing recent data sets on FDI, employment, and trade in China, Southeast Asia, and South Asia. Using Chinese provincial data in 2004, 2008, and 2013 and applying panel estimations, our econometric results demonstrate that FDI remarkably influenced the concentration of employment in manufacturing, financial, and business services industries within the three Chinese macro‐regions. We also find that FDI is ever transient, always moving away from high‐cost to low‐cost production bases across different regions. This transient nature of FDI is spatially selective and biased, and not able to generate the trickle‐down effects to other neighboring regions. That is why FDI recently moved from China to Southeast and South Asia rather than from its coastal to inland regions. Furthermore, we show that this nature of FDI generally leads to polarization development for regions. As a synthesis or extension of the existing theories, we propose a leapfrog polarization pattern and strategy for vast developing countries in considering their regional development strategies.

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