Mode of Entry and the Regional Distribution of Foreign Direct Investment in China

Abstract

In this paper we re-examine the regional determinants of FDI in China using both total FDI flows, and FDI flows disaggregated by entry mode. Building on both the FDI location and entry mode choice literatures, we argue for the existence of mode-specific location advantages, and test for their existence. We first specify and estimate a location model of aggregate FDI flows to Chinese regions. Using the aggregate model as a benchmark, we then estimate separate equations for each of three different entry modes (wholly-owned subsidiaries, equity joint ventures and cooperative joint ventures), and compare the results with the aggregate model. The results indicate that mode-specific location advantages do exist, at least within China, but they are limited to a small number of factors. In particular, we identify the accumulated stock of FDI as being more likely to attract high control modes of entry, while existing policies to attract FDI are more likely to attract lower control modes of entry.Foreign Direct Investment, location choice, entry modes, China,

What Causes the Regional Disparity of FDI in Russia? A Spatial Analysis

“…These 9 countries in their model are: Belgium, France, Germany, Ireland, Italy, the Netherlands, Spain, Portugal and the United Kingdom. 10 There are many other studies on the regional distribution of FDI in China, such as Wei et al (1999), Broadman and Sun (1997), Shapiro et al (2007) but these employ other methods.…”

Leadership positioning among U.S. firms investing in China

“…Quazi (2007) finds a large impact of economic freedom on FDI inflows to East Asian countries. Shapiro, Tang, and Ma (2007) find that location choice for equity joint ventures is significantly determined by wages, FDI stock, education, and presence of special economic zones.…”

A Geographic View of Expansion Choices by U.S. Firms in China

“…The literature outlines a number of locational variables that influence the timing and location of investment. Shapiro, Tang, and Ma (2007) find that location choice for equity joint ventures is significantly determined by wages, FDI stock, education, and presence of special economic zones. Additional studies on locational impact of investment flows include proximity to markets and suppliers (Amiti and Javorcki, 2008), labor quality, economic zones, and distance (Gao, 2005), and patent certification volume, share of state-owned business, GDP, wage, and road density (Kawai, 2009).…”