The role of Transport Infrastructure in Attracting FDI in China: A Regional Analysis

Abstract

This study investigates the relative importance of transport infrastructure in attracting FDI to three different regions in China based on 28 Chinese provincial economies from 1995 to 2008. Using fixed effect panel data approach, transport infrastructure is seen to have contributed to the relative attractiveness of the provinces, especially in west and middle regions, while the effect is not significant in the east region. The impact of other forms of infrastructure, such as telecommunication infrastructure, seems to exhibit similar positive impact, though to a lesser extent. Consistent with previous studies, other variables such as agglomeration effect, market size and policy incentive yielded the expected signs and results and seem as main drivers of FDI. Regional differences exist. Very interestingly, the extent and presence of good transport infrastructure in neighboring provinces have a significantly positive impact on local FDI decision.