Determinants of Inward FDI : The case of Chinese Regions

This thesis examines the determinants of FDI inflows into the various regions of China. After implementing several reforms, beginning with the Open Door Policy in 1978, China is by today the second largest recipient of FDI in the world. However, the increasing amounts of FDI into the Chinese regions have not been evenly distributed. Using regional data from 1995-2010, determinants of inward foreign direct investments and their associated effects on inward FDI are tested using panel data analysis. The empirical results indicate that market size, infrastructure, openness to international trade, imports, and presence of a special economic zone have a positive effect on FDI inflows whereas labour costs are found to have a negative impact on FDI inflows. Further opening of the domestic market to multinational enterprises is needed in order to attract more FDI inflows, as it is clear that foreign investors respond positively to tax incentives and improved capital markets (Special Economic Zones)