Economic institutions and FDI location choice: Evidence from US multinationals in China

Abstract

This paper examines the impacts of economic institutions, including property rights protection and contract enforcement, on the location choice of foreign direct investment. From a data set of 6288 US multinationals investing in various China's regions for the period of 1993-2001, it is found that US multinationals prefer to invest in those regions that have better protection of intellectual property rights, lower degree of government intervention in business operations, lower level of government corruption, and better contract enforcement. Our results are robust to alternative measures of economic institutions, different sub-samples, and different estimation strategies, and to the inclusion of control variables such as those for agglomeration economies, and other traditional factors of FDI location choice. Journal of Comparative Economics 36 (3) (2008) 412-429. © 2008 Association for Comparative Economic Studies.