PUBLICATIONS & REPORTS

Contents Introduction

Using an extensive data set on foreign invested enterprises (FIEs) in the Chinese mainland, we explore the role of regional economic institutions as well as other more traditional factors in determining the locational choice of foreign direct investment (FDI). In particular, we compare the sensitivities of FDI from six major source countries/areas (Hong Kong, Taiwan, US, EU, Japan and Korea) toward the variation in economic institutional strength across China’s regions. It is found that FIEs from the source countries/areas that are institutionally or culturally more remote from China exhibit a stronger aversion to regions with weaker economic institutions. Both the separate regression analysis for FDI from each major source country/area and the pooled regression analysis for FDI from all the six major source countries/areas lend support to this finding. Moreover, this pattern is more salient when FDI takes the form of fully-owned enterprises (FOEs) than when it takes the form of joint ventures (JVs).