Location Determinants of Foreign Direct Investment in Services: Evidence from Chinese Provincial-level Data

This article analyzes the location determinants of foreign direct investment in services, both theoretically and empirically. It hypothesizes four sets of factors as the location determinants of FDI in services based on the standard theory of FDI. The generalized investment theory on China’s foreign direct investment is tested empirically utilizing panel data for 17 provinces and cities from 2000 to 2010. The estimation results provide considerable support for the importance of these factors in determining flows of foreign direct investment within a country. It compares the determinants of inward FDI in services to those of the manufacturing within one framework, and concludes that FDI in services tends to be motivated by market-seeking and client-following purposes, and no particularly new theory for explaining service FDI is required, only an adaptation will do.