FDI inflows and the economic growth of city clusters: evidence from China's Yangtze River Economic Belt

This study investigates the impact and transmission mechanism of foreign direct investment (FDI) inflows on the economic growth of city clusters. Via theoretical analysis, a spatial Durbin model (SDM) and mediating effect model are applied based on panel data of the three major city clusters in the Yangtze River Economic Belt (YREB) from 1997 to 2018. The results reveal the following: (1) FDI inflows promote the economic growth of city clusters in the YREB, but the degrees of impacts on the three city clusters are different; (2) the spatial effects of FDI inflows differ across city clusters; the effects are negative in city clusters of the Yangtze River Delta and the Yangtze River Middle Reaches, and positive in the Chengdu-Chongqing city cluster; (3) urbanization and industrial structure upgrading are two important mechanisms by which FDI inflows promote the economic growth of city clusters. However, there are differences among the three major city clusters; the intermediary effect of urbanization is more significant in city clusters of Chengdu-Chongqing and the Yangtze River Middle Reaches, while the intermediary effect of industrial structure upgrading is more significant in the Yangtze River Delta and Chengdu-Chongqing city clusters. Policy implications are proposed accordingly.