Determinants of FDI in producer services: evidence from Chinese aggregate and sub-sectoral data

Abstract

PurposeThe purpose of this paper is to examine the determinants of foreign direct investment (FDI) in producer services in China using both country aggregate and provincial sub-sectoral data.Design/methodology/approachThis paper applies autoregressive distributed lag (ARDL) cointegration and panel data regression approaches in examining the determinants of Producer Service FDI (PSFDI).FindingsOur results show differences between the determinants of aggregate FDI and PSFDI. Contrary to the typical influencing factors of general FDI (that include GDP, openness, low wages and environmental quality), the two main determinants of PSFDI inflows to China are found to be high wages and research inputs (specifically the number of research workers as a proxy for research intensity). Data drawn from 26 Chinese provinces disaggregated at sub-sector level of producer services corroborate the results.Originality/valueWe add to existing literature by identifying the key determinants of inward PSFDI in China also via a provincial-level data analysis and disaggregation at sub-sectoral level of producer services.