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FDI Location and the Relevance of Spatial Linkages: Evidence from Provincial and Industry FDI in China


  • We are grateful to the associate editor, Alan Woodland, and two anonymous referees for providing invaluable comments to improve our paper. We would like to thank Bruce Blonigen, Brian Brush, Jim Granato, Eran Guse, Shuichiro Nishioka, Bill Trumbull, Andrew Young, Economics Department seminar participants at West Virginia University, and session participants at the 2010 Southern Economics Association Conference in Atlanta, GA for their useful comments and suggestions. We also thank Waiman Auyeung for collecting the data used in this study. This project is partially supported by Marquette University College of Business Administration Miles Summer Research Grant.


In this study both aggregate and industry-level foreign direct investment (FDI) data are employed to investigate the spatial dependence of FDI hosts. The analysis contributes to the existing literature by focusing on the heterogeneous spatial correlation of FDI in different industries. Using more comprehensive FDI data across multiple industries and multiple provinces in China from 1999 to 2007, the results show a significant spatial correlation among provinces. Aggregate FDI tends to be regional trade platform oriented indicating neighboring provinces become competitors for FDI. In contrast, results based on industry-level provincial FDI show stronger support for vertical or complex vertical FDI.