Spatial inequality of foreign direct investment in China: Institutional change, agglomeration economies, and market access

The spatial inequality of foreign direct investment (FDI) can intensify uneven economic development. As globalization and economic transition proceeds, foreign investors are changing their behaviors in FDI location, based on institutional change and agglomeration effects. In order to reduce the inequality, this research employs spatial statistics and analyses to examine the change in the spatial inequality of FDI among regions and among prefectural cities, and uses regression models and spatial regime analyses to investigate factors influencing the inequality from 1990 to 2010. The spatial diffusion of FDI clusters from the eastern/coastal region to the interior shows the trend of FDI convergence among regions. However, increasing numbers of FDI clusters and hot spots show the increasing divergence among cities within three regions. Agglomeration effects have replaced institutional factors to become one of the most significant factors influencing the FDI inequality among cities. Additionally, special economic zones, coastal open cities, provincial capital cities, and development zones lost their advantages in FDI as more reforms set in. The spatial regime analyses further indicate the significance of market size in FDI in prefecture-level cities and the significance of agglomeration economies in FDI in capitals and municipalities.