FDI Location Decision: Evidence from Firms Investing in China

Abstract

By relying on an extensive set of firm data for foreign affiliates in China, the paper investigates the determinants of FDI location choice for multinational firm subsidiaries located in different special economic and investment zones. Using a logit estimation, the results suggest that various factors explain the location choice of FDI in China, and vary according to the country of origin and the sector of activity. Overall, the results show that the protection of intellectual rights, the agglomeration economies, the investments in education and the GDP of the region affect the location choice of FDI. Implications can be drawn for policy-makers to divert FDI from coastal to inland regions. Finally, the last part of the paper derives, from the obtained results, implications for future research and theory building.