Third-Province Effects on Inbound FDI: Evidence from Chinese Provinces

The literature of Foreign Direct Investment (FDI) determinants is broad and deep. However, no previous research has formally considered spatial linkages of regions implied by the strategies of Multi-National Enterprises (MNEs) inside a country. Inspired by the recent FDI theories emphasizing third-country effects, this research explores MNE strategies within China and the implied spatial linkages of Chinese provinces in receiving FDI. The spatial econometric estimations reveal the existence of third-province effects. The empirical evidence shows that spatial effects should not be neglected in studies of FDI determinants within a country; furthermore, hypotheses on spatial linkages cannot be rigidly borrowed from FDI theories.