Foreign direct investment and industrial agglomeration: Evidence from China

Wen Tai Hsu; Yi Lu; Xuan Luo; Lianming Zhu

doi:10.1016/j.jce.2022.12.004

Foreign direct investment and industrial agglomeration: Evidence from China

Wen Tai Hsu, Yi Lu, Xuan Luo, Lianming Zhu

Research output: Journal Publication › Article › peer-review

19 Citations (Scopus)

Abstract

This paper studies the effect of foreign direct investment (FDI) on industrial agglomeration. Using the differential effects of FDI deregulation in 2002 in China on different industries, we find that FDI affects industrial agglomeration negatively. As FDI brings technological spillovers and various agglomeration benefits, other forces must be at work to drive this empirical finding. We propose a simple theory that FDI may discourage industrial agglomeration due to fiercer competition pressure. We find various evidence of this competition mechanism. We also find that FDI deregulation is conducive to industrial growth, but the dispersion induced by FDI deregulation reduces the positive effect of FDI on the growth rate by 8 to 14%.

Original language	English
Pages (from-to)	610-639
Number of pages	30
Journal	Journal of Comparative Economics
Volume	51
Issue number	2
DOIs	https://doi.org/10.1016/j.jce.2022.12.004
Publication status	Published - Jun 2023
Externally published	Yes

Keywords

China
Competition
Deregulation
FDI
Industrial agglomeration
Industrial growth
WTO

ASJC Scopus subject areas

Economics and Econometrics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.jce.2022.12.004

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title = "Foreign direct investment and industrial agglomeration: Evidence from China",

abstract = "This paper studies the effect of foreign direct investment (FDI) on industrial agglomeration. Using the differential effects of FDI deregulation in 2002 in China on different industries, we find that FDI affects industrial agglomeration negatively. As FDI brings technological spillovers and various agglomeration benefits, other forces must be at work to drive this empirical finding. We propose a simple theory that FDI may discourage industrial agglomeration due to fiercer competition pressure. We find various evidence of this competition mechanism. We also find that FDI deregulation is conducive to industrial growth, but the dispersion induced by FDI deregulation reduces the positive effect of FDI on the growth rate by 8 to 14\%.",

keywords = "China, Competition, Deregulation, FDI, Industrial agglomeration, Industrial growth, WTO",

author = "Hsu, \{Wen Tai\} and Yi Lu and Xuan Luo and Lianming Zhu",

note = "Publisher Copyright: {\textcopyright} 2023 Association for Comparative Economic Studies",

year = "2023",

month = jun,

doi = "10.1016/j.jce.2022.12.004",

language = "English",

volume = "51",

pages = "610--639",

journal = "Journal of Comparative Economics",

issn = "0147-5967",

publisher = "Academic Press Inc.",

number = "2",

}

TY - JOUR

T1 - Foreign direct investment and industrial agglomeration

T2 - Evidence from China

AU - Hsu, Wen Tai

AU - Lu, Yi

AU - Luo, Xuan

AU - Zhu, Lianming

PY - 2023/6

Y1 - 2023/6

N2 - This paper studies the effect of foreign direct investment (FDI) on industrial agglomeration. Using the differential effects of FDI deregulation in 2002 in China on different industries, we find that FDI affects industrial agglomeration negatively. As FDI brings technological spillovers and various agglomeration benefits, other forces must be at work to drive this empirical finding. We propose a simple theory that FDI may discourage industrial agglomeration due to fiercer competition pressure. We find various evidence of this competition mechanism. We also find that FDI deregulation is conducive to industrial growth, but the dispersion induced by FDI deregulation reduces the positive effect of FDI on the growth rate by 8 to 14%.

AB - This paper studies the effect of foreign direct investment (FDI) on industrial agglomeration. Using the differential effects of FDI deregulation in 2002 in China on different industries, we find that FDI affects industrial agglomeration negatively. As FDI brings technological spillovers and various agglomeration benefits, other forces must be at work to drive this empirical finding. We propose a simple theory that FDI may discourage industrial agglomeration due to fiercer competition pressure. We find various evidence of this competition mechanism. We also find that FDI deregulation is conducive to industrial growth, but the dispersion induced by FDI deregulation reduces the positive effect of FDI on the growth rate by 8 to 14%.

KW - China

KW - Competition

KW - Deregulation

KW - FDI

KW - Industrial agglomeration

KW - Industrial growth

KW - WTO

UR - https://www.scopus.com/pages/publications/85147380683

U2 - 10.1016/j.jce.2022.12.004

DO - 10.1016/j.jce.2022.12.004

M3 - Article

AN - SCOPUS:85147380683

SN - 0147-5967

VL - 51

SP - 610

EP - 639

JO - Journal of Comparative Economics

JF - Journal of Comparative Economics

IS - 2

ER -

Foreign direct investment and industrial agglomeration: Evidence from China

Abstract

Keywords

ASJC Scopus subject areas

UN SDGs

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