State Characteristics and the Locational Choice of Foreign Direct Investment: Evidence from Regional FDI in Mexico 1989–2006

ABSTRACT Despite the growing importance of foreign direct investment (FDI) in the Mexican economy, statistical evidence on the determinants of the regional distribution of foreign‐owned firms is seriously limited. In this paper, empirical findings are presented from a variety of econometric models that identify several regional characteristics influencing the locational choice of FDI. The main findings are threefold. First, several locational factors appear to be potentially important; these include regional demand, wages, schooling, infrastructure, and agglomeration economies. Second, the effect of agglomeration economies stems from several sources. In particular, the regional presence of agglomerations of manufacturing activity and of foreign‐owned manufacturing firms both have an independent positive effect on the locational decision of new FDI. Third, the locational process of maquiladora firms differs from the locational process of overall FDI. The actual findings suggest that regional demand and infrastructure, as suggested above, are not important locational factors for export‐oriented firms. Furthermore, whereas agglomeration economies from manufacturing and the presence of existing FDI attract new maquiladora investment, the presence of a regional agglomeration of services deters the location of new maquiladora firms. Finally, agglomeration economies appear to be more important in the locational process of maquiladora firms.     

Local Embeddedness,Market Focus,and Productivity: Evidence of Taiwanese Manufacturing MNE Subsidiaries in China

There has been considerable literature discussing the characteristics and importance of location‐specific factors in the context of Foreign Direct Investment (FDI), but very little literature linking location‐specific factors to productivity. This study explores, for each location‐specific factor, the relationship between the degree of local embeddedness and the labor productivity. We contribute to the body of literature on location‐specific factors by arguing that market focuses play a pivotal role in determining the impact of local embeddedness on productivity. Based on their strategic choices, we categorize Taiwanese manufacturing multinational enterprise (MNE) subsidiaries in China into two groups: the local‐market‐focus group and the export‐market‐focus group. The paper fits the Ordinary Least Squares (OLS) regression models to the export‐market‐focus group and the local‐market‐focus group separately. For these two groups, each local‐embeddedness variable exerts different effect on labor productivity. Results also suggest that local‐market‐focus FDI is more affected by the host country's local business environment than is export‐market‐focus FDI. Although this study cannot represent all foreign companies in China, its dynamism offers a rich context in which to explore a deeper understanding of foreign companies' business activities in China.     

The relationship between foreign direct investment and domestic entrepreneurship: The impact and scale of investments in China

Both entrepreneurship and foreign direct investment (FDI) are frequently identified as being sources of local and regional economic growth. However, the relationship between the two is not always clear, with a negative competition effect and a positive demand effect potentially present. China provides an interesting case to study with its large state-owned sector, combined with a recent history of successfully attracting considerable FDI. This study examines the relationship between self-employment and different elements of foreign influence (FI) at a provincial level. The results imply that foreign investment reduces the level of self-employment, whilst the number of foreign enterprises and foreign exports have positive effects. The results therefore show the importance in considering multiple perspectives in terms of FI. It appears that policies that attract individual large investments suppress the development of domestic enterprise as predicted by the competition effect, but where more foreign enterprises are present, and a cluster starts to develop, a demand effect appears to take over. This means that provincial government policy may need to be more nuanced to avoid economies being highly reliant on a limited number of what might be quite footloose larger foreign employers.     

The heterogeneity of agglomeration effect: Evidence from Chinese cities

Using annual surveys of industrial firms in China from 1998 to 2007, this paper applies the non‐linear least squares (NLS) method based on a grid search to analyse the effect of city size on firm total factor productivity (TFP). The results show that overall, the agglomeration effects in large cities, but not selection effects, significantly promote improvement in firm TFP. The optimal agglomeration scales of different industries differ as follows: those of capital‐ and technology‐intensive industries are larger than those of labour‐intensive industries. The agglomeration effects are also robust to different spatial areas without considering administrative boundaries. An inverted U‐shaped relationship exists between firm size and agglomeration effects, while the relationship between firm age and agglomeration effects is U‐shaped. State‐owned firms experience weaker agglomeration effects than non‐state‐owned firms. Cities higher in the administrative hierarchy and those with special economic zones have stronger agglomeration effects. However, cities higher in the administrative hierarchy and those with a larger economic development zone index can provide more resources to increase the survival rate of low‐productivity firms; thus, selection effects are not significant in Chinese cities.     

Global‐local initiatives in FDI: The experience of Shenzhen,China

Abstract: In 2002, China surpassed the USA to become the world's largest foreign investment destination. Many Chinese cities, especially those along the coast, have become hot spots for Foreign Direct Investment (FDI). The urban development of these Chinese cities, as in most market societies, has increasingly depended upon their global connections. However, it is unclear to what degree the governments of these cities are able to influence the decisions of foreign investors. This paper uses Shenzhen city as a case study to examine how multi‐nationals’ spatial and sectoral patterns have been changed over time and to what degree the local government has been able to influence multinationals’ locational and sectoral selection. It is concluded that Shenzhen has managed to create a strategy to maximise its ability to benefit from global economic forces and to attract multinational manufacturers in the locality, and particularly in increasing its target sector of technology‐intensive industry. This case study demonstrates the importance of a strong city government in managing growth and reacting decisively to globalisation.     

Innovation in suburban development zones: Evidence from Nanjing,China

While suburban areas have been typically related with urban sprawl, low density, cheap land price and low‐end manufacturing industries, relatively little attention has been paid to the spatial organization of innovation in suburban areas. In some Chinese cities, development zones (kai fa qu) in their suburban areas which are generally regarded as major spaces for traditional manufacturing industries have been transforming into spaces for innovation. This paper provides a case study of Nanjing, the capital of Jiangsu province in Eastern China by investigating and explaining the learning and innovation processes in suburban development zones. Drawing upon a unique database on 733 state‐certified high‐tech firms in Nanjing from 2008 to 2012 which contains detailed information on their addresses and number of patents, we observe strong spatial disparity in the distribution of innovation. Suburban districts of Nanjing where its three national‐level development zones and many provincial‐level development zones are located have become major spaces for innovation of the city. The planning of industrial clusters in development zones, the place‐based investment in the suburbs, and the suburbanization of universities are three major mechanisms behind the learning and innovation processes in Nanjing’s suburban development zones.     

The Spatial Dimension of Trade‐ and FDI‐driven Productivity Growth in Chinese Provinces: A Global Cointegration Approach

This paper analyses the major determinants of long‐ and short‐run labour productivity evolution for Chinese provinces between 1978 and 2010. The role played by openness to trade and foreign direct investment (FDI) constitutes the main focus of this analysis. From a methodological perspective, our main contribution is the inclusion of spatial effects into a dynamic error correction modelling framework. The results show that, in addition to domestic factors such as investment intensity and infrastructure use, trade openness and inward FDI also exert a direct impact on labour productivity. Furthermore, the geographical environment has a strong indirect influence on productivity: The more a region is surrounded by high‐productive regions with good infrastructure and linkages to the world economy, the higher are its productivity level and growth rate. The magnitude of these impacts varies by spatial regime (coastal, interior provinces) and time period in focus. Especially in the recent past, trade and FDI activity appear to be increasingly important drivers of regional productivity evolution, both for coastal and interior regions. These findings have important policy implications: In order to fully exploit the benefits from such spillovers, coordinated industrial policies which foster regional complementarities and support the free movement of production factors across regional borders are crucial.     

Advantages of place as perceived by Sunbelt promoters

A questionnaire was sent to 104 Chamber of Commerce executives in states and cities in the South and Southwest to evaluate the factors they perceive to be important in recruiting business and industrial migrants from the North. 81 respondents rates 33 locational factors on a scale of 1 to 5. Results show variation in the perceived importance of factors between Southeast, South Central, and Southwest states and the Border states. Patterns of perceived competition among cities reveal that Border cities view Southern cities as their most important competitors but Southern cities see their major competitors as other rapidly growing Southern cities. Large cities do not see smaller cities as competitors with the exception of the "high tech" research centers such as Raleigh, North Carolina.     

The Influence of Agglomeration Externalities on Manufacturing Growth Within Indonesian Locations

Differences in agglomeration externalities and industrial regimes between locations generate performance differentials for their localized economic activities. For more than two decades, scholars have debated which externality is dominant for growth and under which regime. This study aims to resolve this debate by analyzing the influence of agglomeration economies on the growth of five‐digit manufacturing sectors and firms for Indonesian cities and regencies between 2000 and 2009. This is investigated employing the recent reconceptualization of variety based on sectoral linkages distinguishing related and unrelated varieties, which allow assessing their idiosyncratic economic roles. The findings support that economic relatedness is the dominant source for expansion of sectors and firms within Indonesian locations. Specialized clusters and competition are inversely related to manufacturing growth, although the latter fosters sectoral employment within Indonesian regencies. Population density and human capital show antithetic effects between cities and regencies due to their distinctive urbanization trajectories and industrial compositions.     

Development Zones,Foreign Investment,and Global City Formation in Shanghai*

ABSTRACT The rapid economic ascent of China and the increasing integration of the world economy in the past two decades have made metropolises in China such as Shanghai and Beijing emerging global cities. Foreign investment is a central force underlying the emergence and transformation of the Chinese metropolises into global cities. This is especially true in Shanghai, which has experienced massive infusion of foreign investment. Varied forms of foreign investment or development zones have been created to promote foreign investment inflows, yet remain under‐studied. This paper analyzes structure, performance, and underlying factors of development zones in Shanghai, and discusses the implications for global city‐formation; it unfolds the variations among development zones, and illustrates the significant role of the state and local conditions. As the literature on global cities dwells primarily on the experiences of advanced economies, this paper further contributes to a better understanding of the dynamics of emerging global cities in the developing world.     

Government support and firm innovation performance in Chinese science and technology parks: The perspective of firm and sub-park heterogeneity

Science and technology parks (STPs) are established to promote the firm innovation performance via agglomeration economy and government support in China. On-site qualified firms obtain government R&D funding as a type of government support, and they are offered differential innovation service caused by the differential capabilities of sub-parks which scatter throughout a single city. It is debatable whether those government supports at firm and sub-park levels can promote firm innovation capabilities. This study takes Zhangjiang National Innovation Demonstration Zone, Shanghai as an example. It applies a Tobit regression model to analyse the databases of Zhangjiang Annual Sampling Survey of Firms 2015 and Zhangjiang Development Report 2015. We find out at the firm level, government R&D funding has a significant and positive influence on firms' innovation, but government R&D funding generates a crowing-out effect the innovation performance of on-site firms with more R&D investment themselves. At the sub-park level, innovation service agencies of sub-parks do not exert an important role in influencing firms' innovation, and they even have negative moderating effects on the relationship between firm R&D investment and firm innovation performance. It reflects the mismatch between innovation service of STPs and firms' needs in China.     

The geography of the wages: Chinese cities 1989 and 1997

Improving national average income and reducing regional income inequality often serve as dual goals of economic development in a country. After over twenty years of economic reforms, China has been fairly successful in achieving the first goal, but failed in the second. This paper uses recent data with a sharper resolution to examine the variation of average wages across Chinese cities 1989–1997. Widening wage inequalities across cities are observed during the period. This research also seeks to explain the variation of wages between cities by factors such as agglomeration (density and city size), location advantages (distances from central cities and from the coastline), educational attainment, industrial structure and administrative hierarchy. Many of the factors are found to be important in explaining wage differences in Western countries but are yet to be tested in China. Some factors such as distance from the coast, industrial structure and administrative hierarchy are considered because of China’s unique social and economic systems.     

Big or Small Cities? On city size and economic growth

Policy makers and academics frequently emphasize a positive link between city size and economic growth. The empirical literature on the relationship, however, is scarce and uses rough indicators for the size of a country's cities, while ignoring factors that are increasingly considered to shape this relationship. In this paper, we employ a panel of 113 countries between 1980 and 2010 to explore whether 1) there are certain city sizes that are growth enhancing and 2) how additional factors highlighted in the literature impact the city size/growth relationship. The results suggest a nonlinear relationship which is dependent on the country's size. In contrast to the prevailing view that large cities are growth‐inducing, for a majority of countries relatively small cities of up to 3 million inhabitants are more conducive to economic growth. A large share of the urban population in cities of more than 10 million inhabitants is only growth promoting in countries with an urban population of 28.5 million and more. In addition, the relationship is highly context‐dependent: a high share of industries that benefit from agglomeration economies, a well‐developed urban infrastructure, and an adequate level of governance effectiveness allow countries to take advantage of agglomeration benefits from larger cities.     

A quantitative analysis of Hukou reform in Chinese cities: 2000–2016

This paper documents the changes in China's Hukou reform before and after 2014 based on a unique data set of Hukou policy documents from Chinese cities between 2000 and 2016. We construct a Hukou registration index to measure the stringency of local Hukou qualification in Chinese cities. There are four main channels for migrants to get local urban Hukou: investment, home purchase, talent program, and employment. The requirements of the four channels have large variations across different tiers of cities between the two periods of 2000–2013 and 2014–2016. First‐tier and some second‐tier cities set high criteria for local Hukou registration that have become more stringent over time, while other cities have much lower requirements. The point account system for Hukou registration shows that cities have different preferences over workers eligible for local urban Hukou. The quantitative measures developed in this paper can be used to study a variety of topics on the social and economic consequences of labor mobility barriers.     

On the drivers of UK direct investment in the Spanish regions: A spatial Durbin approach

This paper empirically examines the key factors driving UK direct investment in the Spanish regions over the period 2000–2016 and, consequently, tries to unveil its main motivation. Applying a spatial Durbin panel model to capture spatial linkages, the results point to the existence of complementarity between the FDI received by a region and that of the remaining ones. This outcome, along with a positive and statistically significant spillover effect of market potential, reveals that complex-vertical FDI motivation with agglomeration economies prevails among UK MNEs investing in Spain. Additionally, our findings unveil the role played by some other FDI drivers, such as wages and infrastructure. Furthermore, the paper is unique in decomposing the average direct and spillover effects by region and pairs of regions, so that remarkable differences can be identified. This breakdown has strong significance from a policy perspective since it can guide regional policy makers. In short, our findings point out to the fact that FDI policy should be jointly designed by those regions presenting strong bilateral spillover effects. Thus, greater cooperation among policy makers would be welcome.     

The peri‐urbanisation of Shanghai: Planning,growth pattern and sustainable development

Abstract: With the increase of global integration, the peri‐urban area (PUA) of megacities in Asia has become a favourite destination for foreign direct investment (FDI). This paper uses the PUA of Shanghai as a case study to investigate the impact of global forces on the urban expansion of the city, and the link between urban growth and sustainable development in this mega‐urban context. Shanghai has grown impressively during the past two decades in terms of economic and physical transformation. Much of this transformation has rested on the unbridled exploitation of land and other environmental resources in its peri‐urban area. This is characterised by the designation of development zones and the concentration of manufacturing FDI, resulting in dispersed growth and environmental degradation. The disruption of the physical environment, combined with the concentration of the urban poor in these areas (in particular ‘temporary migrants’), has turned the PUA into a potential crisis point threatening the social and economic development of the city.     

Foreign direct investment flows to Mexican states: A study of the automobile industry, 2004–2014

This study examines the subnational flow in foreign direct investment (FDI) to Mexican states, with a focus on the finished vehicle industry. Although prior studies have examined subnational FDI in Mexico, research on the automobile sector has been scant. Utilizing a framework associated with the theory of asset specificity, we examine the influence of human capital and labor conditions, infrastructure, subnational policies, and security. The study employs a data set on finished vehicle FDI across 31 states and the Federal district for the period of 2004–2014. We adopt a two‐part model. The first part, which includes all states and the Federal district, is estimated with pooled logistic and Firth logistic regressions. In the second part, we examine variation in levels of FDI among states selected for investment with pooled ordinary least squares with panel‐corrected and Driscoll Kraay standard errors. Labor conditions are significant for both state selection and levels of FDI, but education is influential only in the selection stage. In addition, states with trunk rail lines linked to the U.S. border are more likely to be selected and receive higher FDI. After controlling for these influences, murder and homicide rates, and state development have no significant effects.     

Overview: Restructuring Chinese space in the new millennium

This collection is concerned with understanding the nature of China’s spatial development during the transition to a socialist market economy. It does so primarily by questioning the applicability of the ‘desakota’ model and extended metropolitan region (EMR) concept to the contemporary Chinese space economy. Yu Zhu’s contribution extends the ‘desakota’ model by applying it to rural areas without the attraction of large cities. Wing‐Shing Tang and Him Chung’s contribution discusses illegal land use and construction to highlight the rural‐urban transition’s negative and disintegrative aspects glossed over by the ‘desakota’ model, which stem from the extension of urban administration to former rural areas and the redistributive effects of land use reform. Andrew Marton sees the original ‘desakota’ model being rejuvenated by introducing the notion of rural agglomeration, a clearer recognition of local administrative structures and an appreciation that development issues now take place within a global‐local framework. George Lin explores the lingering effects of rural origins on Chinese identity and how this affects subsequent social and commercial groups within the Chinese diaspora. Peter Rimmer and Claude Comtois show how changes in China’s transport and telecommunications industry underlie, to a significant degree, the restructuring of China’s space economy and the country’s links to the rest of the world. Overall the contributions highlight that a new consensus will be required for any revised model of the Chinese space economy if this is to provide guidance for planners engaged in restructuring Chinese space in the new millennium.     

Comparisons of three-dimensional urban forms in different urban expansion types: 58 sample cities in China

Traditional studies of urban spatial expansion typically focus on a single vertical or horizontal dimension and rarely consider the two together. Using 58 cities in China as examples, this paper first identifies the urban growth pattern (UGP) of newly built-up land patches in each city from 1995 to 2015 horizontally. It then compares and analyses the distribution patterns of three-dimensional buildings in different UGP patches vertically. There were two important findings: (a) Building patterns in the outlying patches were characterized by low density, high floor numbers, and smooth changes. The infilling patches represented compact development and had the lowest average building height. Edge patches had the highest average number of floors, the most dramatic floor variability, and the lowest utilization rate of three-dimensional space. (b) In western cities, building distribution characteristics in outlying patches were similar and formed clusters. The distribution characteristics of buildings in the Beijing-Tianjin-Hebei urban agglomeration edge patches, as well as those in the northeast urban agglomeration infilling patches, were similar, forming clusters of different types. The results of this paper will contribute to an understanding of both sprawl and the compact development of Chinese cities and will provide international comparative examples.