This paper summarizes the changes in China’s FDI policy and empirically examines the trend of locational choice of foreign enterprises in the Yangtze Delta. It mainly uses county level data from the Jiangsu and Zhejiang provinces using geographical information and applies spatial econometric methods.
The main results are as follows. First, the degree of concentration (Gini coefficient) of firm location slightly declined. Meanwhile, the degree of accumulation (Moran’s I) significantly increased in the 2000s. Second, despite China’s FDI policy becoming more selective in the 2000s, the core of geographical accumulation still remained in the city, which established a state level economic development zone in the early years of reform and opening period. Third, the choice of location of foreign enterprises is significantly influenced by market size, the number of companies, the existence of an economic development zone, and the situation of the neighboring areas. However, contrary to expectations, wage does not have a negative influence on locational choice.
These results imply that accumulation plays an important role in attracting foreign enterprises to a region; therefore, the government should apply a policy to help in the accumulation of know-how and the establishment of a firm network in addition to cost-cutting policies like tax reduction.
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