Geographical Factors in Determining IFDIPolicy

Abstract. With the initiative of the West China Development policy, the flow of Inward Foreign Direct Investment (IFDI) gradually increased in western China. This paper investigates and tests the determinants of IFDI for western China’s11 provincesduring2002 – 2008. By compiling a pool data set and employing General Least Squares (GLS) with fixed effects model in natural logarithmic form, we explorethe IFDI in western China thoroughly. The proposed model illustrates reliable estimates of determinants of IFDI for the region. The market size, laborcosts, education level, imports and highway length are found to have a significant relationship with IFDI in western China, hence, they may be considered as determinants. On the other hand, research and development (R&D), length of railways, and postal and telecommunication services have a statistically insignificant effect on IFDI.Keywords. Inward FDI determinants, Western China, Pool data..JEL. F20, K20, L20, L20, M20