Using both firm-level and city-level data from the Chinese National Bureau of Statistics and unique information on investment promotion agencies (IPA) in China, the present paper evaluates whether IPA affect foreign direct investment (FDI) from the perspective of both intensive and extensive margins; that is, re-investment by incumbent foreign-owned firms and total new FDI inflows into the city, respectively. After controlling for potential determinants of FDI and correcting for biases due to endogeneity, we find that, in general, IPA do not necessarily increase FDI in either case. However, IPA are found to promote re-investment by large foreign-owned firms. The results imply difficulty in the dissemination of information about the business environment to foreign investors.
ASJC Scopus subject areas
- Economics and Econometrics