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Regional Decentralisation and Location of Foreign Direct Investment in China

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  • HE Canfei
Abstract
China's economic transition is essentially a two-pronged decentralisation process: power and fiscal decentralisation from central to local government and shift of decision making from governments to firms and households. Using FDI flow data at the provincial level from 1995 to 2002, this study finds that provinces with more authority in economic matters and hardening fiscal budget constraints have a larger FDI inflow. Market decentralisation may significantly improve the investment environment and attract foreign investment while government interference in economic activities could discourage foreign investment. In addition, more legal spending in a province is associated with a smaller FDI inflow while subsidies to loss-making SOEs could bring more foreign investment.

Suggested Citation

  • HE Canfei, 2006. "Regional Decentralisation and Location of Foreign Direct Investment in China," Post-Communist Economies, Taylor & Francis Journals, vol. 18(1), pages 33-50.
    • Handle: RePEc:taf:pocoec:v:18:y:2006:i:1:p:33-50
    DOI: 10.1080/14631370500505131
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    References listed on IDEAS

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    2. Burret, Heiko T. & Feld, Lars P. & Schaltegger, Christoph A., 2022. "Fiscal federalism and economic performance new evidence from Switzerland," European Journal of Political Economy, Elsevier, vol. 74(C).
    3. Canfei He & Fenghua Pan, 2010. "Economic Transition, Dynamic Externalities and City-industry Growth in China," Urban Studies, Urban Studies Journal Limited, vol. 47(1), pages 121-144, January.
    4. McDonald, Conor & Buckley, Peter J. & Voss, Hinrich & Cross, Adam R. & Chen, Liang, 2018. "Place, space, and foreign direct investment into peripheral cities," International Business Review, Elsevier, vol. 27(4), pages 803-813.
    5. Can-fei He & Sheng-jun Zhu, 2009. "Industrial agglomeration and labour productivity in transition: an empirical study of Chinese manufacturing industries," Post-Communist Economies, Taylor & Francis Journals, vol. 21(1), pages 103-115.
    6. HE Canfei & ZHU Shengjun, 2007. "Economic Transition and Industrial Restructuring in China: Structural Convergence or Divergence?," Post-Communist Economies, Taylor & Francis Journals, vol. 19(3), pages 317-342.
    7. Roger Strange & Igor Filatotchev & Yung-chih Lien & Jenifer Piesse, 2009. "Insider Control and the FDI Location Decision," Management International Review, Springer, vol. 49(4), pages 433-454, September.
    8. Canfei He & Rudai Yang, 2016. "Determinants of Firm Failure: Empirical Evidence from China," Growth and Change, Wiley Blackwell, vol. 47(1), pages 72-92, March.
    9. Saime Kayam & Alexandr Yabrukov & Mehtap Hisarciklilar, 2013. "What Causes the Regional Disparity of FDI in Russia? A Spatial Analysis," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 20(1), pages 63-78, April.
    10. He, Qichun & Sun, Meng, 2014. "Does fiscal decentralization promote the inflow of FDI in China?," Economic Modelling, Elsevier, vol. 43(C), pages 361-371.
    11. Bo Liu & Desheng Xue & Yiming Tan, 2019. "Deciphering the Manufacturing Production Space in Global City-Regions of Developing Countries—a Case of Pearl River Delta, China," Sustainability, MDPI, vol. 11(23), pages 1-26, December.
    12. Zheng, Siqi & Kahn, Matthew E. & Liu, Hongyu, 2010. "Towards a system of open cities in China: Home prices, FDI flows and air quality in 35 major cities," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 1-10, January.
    13. Ralph Vezembouua Marenga & Lesley Blaauw & Omu Kakujaha-Matundu, 2023. "Analysing the Scope of Local Authorities (LAs) in Facilitating and Influencing the Sustainability of Foreign Direct Investment in Namibia: A Case Study of the Windhoek and Walvis Bay LAs," Sustainability, MDPI, vol. 15(2), pages 1-18, January.
    14. Hong Hiep Hoang & Cong Minh Huynh & Nguyen Minh Huy Duong & Ngoc Hoe Chau, 2022. "Determinants of foreign direct investment in Southern Central Coast of Vietnam: a spatial econometric analysis," Economic Change and Restructuring, Springer, vol. 55(1), pages 285-310, February.
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    16. Kunofiwa Tsaurai, 2017. "The Dynamics of Foreign Direct Investment in BRICS Countries," Journal of Economics and Behavioral Studies, AMH International, vol. 9(3), pages 101-112.

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