Region‐specific determinants of the foreign direct investment in China

Abstract This study revisits region‐specific determinants of foreign direct investment (FDI) in Eastern, Central, and Western China using econometric and spatial analyses. It uses a data set covering 31 Chinese provinces and autonomous regions spanning the period 2005–15, together with panel data regression. Our statistical results show that in Eastern China, FDI is significantly associated with bilateral trade, orientation towards the service industry, industrialisation level, and availability of strategic assets in the region. In Central China, FDI is mainly pulled by availability of the domestic market and strategic assets in the region. In Western China, FDI inflows are mainly determined by natural resource endowment, industrialisation level, and regional innovation and production effectiveness in information and communication technology industries. Our analysis also reveals the impact of FDI in China's regional development and its capacity to hollow out the three Chinese macro‐regions. Our findings for China lead us to suggest that those governments seeking to attract FDI should not solely rely on it to facilitate local economic development and should make use of local circumstances in combination with FDI to boost their economies.