Foreign direct investment in China: A spatial econometric study

Using provincial data, we construct and estimate a model to explain the geographic pattern of FDI location within China since 1990, when inflows of FDI began to increase rapidly. Our research builds upon that of Broadman and Sun (1997), Chunlai Chen (1997d) and Chien-Hsun Chen (1996). In addition to using more recent FDI data and testing the explanatory power of additional variables, we extend previous research in one especially noteworthy dimension. Previous research utilises standard econometric models and, thus, fails to incorporate the distinctive characteristics of spatial data. We incorporate the spatial characteristics of the data in our analysis. The next section provides a brief historical overview of FDI in China. It is followed by a discussion of the variables we examine and those used in previous studies of FDI location. We present our statistical results in Section 4, and discuss their importance for FDI policy and future research in the conclusion.