Corruption, Governance and FDI Location in China: A Province-Level Analysis

Abstract China's recent rapid growth has been matched by large increases in exports and foreign direct investment (FDI), but considerable regional disparities in FDI flows exist. We use detailed province level data for China to examine the determinants of intra-country FDI flows. Specifically, we investigate whether FDI is attracted to those regions that exhibit good governance and are most strongly engaged in the fight against corruption, constructing proxies for provincial government efficiency and anti-corruption effort. Our regression results confirm that FDI is attracted to provinces with relatively high levels of government efficiency and are actively involved in the fight against corruption.