The spatial heterogeneity and time-varying nature of FDI determinants: evidence from China

Abstract

This article explores the spatial heterogeneity and time-varying nature of FDI determinants. It also examines the impact of the Belt and Road Initiative (BRI) on regional FDI inflows. Applying both the long-term static model and the short-term dynamic model to a provincial-level dataset in China over the 1979–2018 period, we find that FDI is positively affected by market size, labour costs, openness, transport infrastructure, human capital, and the exchange rate, but negatively affected by population, and more importantly, these effects are heterogeneous across regions and over different time periods. We also find that provinces directly involved in the BRI became less attractive to foreign investors after the launch of the BRI in 2013.

Keywords:

• FDI
• belt and road initiative
• regional differences
• China

JEL CODE:

• F21
• O11
• O47

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The Eastern region includes Beijing, Tianjin, Shanghai, Hebei, Liaoning, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan; the Central region consists of Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, and Hunan; and the Western region includes Inner Mongolia, Guangxi, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, and Xinjiang. Tibet is excluded due to incomplete data. Chongqing is included in Sichuan province due to lack of separate data.

2 We have checked for correlations among the main variables and performed the Variance inflation factor (VIF) test, and the results suggest that our data possess the required properties and our models do not suffer from serious multicollinearity problems.

3 Based on the results in Column (3), the impact of transport on FDI in the central region is negative 0.193% (=1.431-1.624).

Additional information

Funding

This research is financially supported by the Natural Science Foundation of China (72173036) and the Natural Science Foundation of Hainan Province (721RC515). The authors are solely responsible for any errors or omissions herein.

Notes on contributors

Kailei Wei

Dr. Kailei Wei is a professor in Economics at School of Management, Hainan University, China. Kailei holds PhD in Economics from Middlesex University Business School in UK and was a visiting scholar at Michigan State University in USA. Kailei's main research interests include foreign direct investment, high-quality development of regional economy, and rural tourism and internationalization of tropical agriculture. She has secured funding from National Natural Science Foundation of China to support three of her research projects, along with a number of other research projects funded by provincial (Hainan Province) and ministerial funding bodies. Her research works has been published in leading peer-reviewed academic journals such as Journal of Comparative Economics, Review of Development Economics, and Applied Economics Letters. Her research works has also appeared in China's top economics journals.

Suhan Li

Miss Suhan Li is a postgraduate student, under Professor Kailei Wei’s supervision, majored in Agricultural and Forestry Economics and Management at the School of Management, Hainan University, China. Suhan’s main research interests include foreign direct investment and economic growth of the agricultural sector.

Chunxia Jiang

Dr Chunxia Jiang is a Senior Lecturer (Associate Professor) in Finance at the Business School, University of Aberdeen, UK. Prior to joining Aberdeen in 2019, She was a Lecturer/Senior Lecturer at Newcastle University and Middlesex University Business School in UK. Chunxia holds PhD in Economics and MSc Money, Banking and Finance from Middlesex University Business School, UK. Chunxia’s main research interest include banking performance and competition, financial stability, monetary policy, and recently extend to fintech and cryptocurrency. Her research works have appeared in leading peer-reviewed academic journals such as the Journal of Banking & Finance, Journal of Financial Stability, and Energy Economics. Her research works have also appeared in top economics journal in China. Chunxia has published a research monograph: Chinese Banking Reform - From the Pre-WTO to Financial Crisis and Beyond by Palgrave Macmillan.