Effect of Land Marketization Level and Land Prices on Foreign Direct Investment in China

Abstract

With the increase in China’s land marketization level, the fundamental role of pricing mechanisms in optimizing the allocation of land resources has received greater attention and has affected foreign direct investment (FDI). This paper analyzes the effects of land marketization level and land prices on FDI using a mediation model based on data on primary land market transactions in 256 cities from 2003 to 2019. The results indicate that the land marketization level, land prices, and FDI are all increasing, with regional heterogeneity. Compared with low-level cities, the land marketization level and land prices in high-level cities have increased the most. Low-level cities have become new hotspots for FDI, whereas high-level cities remain the main destinations for FDI. Both land marketization levels and land prices significantly promote FDI. Land marketization level exerts a weak direct positive effect on FDI in high-level cities but a strong indirect positive effect on FDI in high-level cities through land prices in general. The results of this study enrich the literature on the location decisions of multinational corporations and may serve as a reference for China and other developing countries in developing policies to attract FDI.