The Double Dividend of More Equally Distributed FDI: Analyzing Regional Variation in the FDI-Growth Nexus across Chinese Cities

This paper reassesses the relationship between FDI inflow and local growth in China, shedding a critical light on what is popularly viewed as a success story of Chinese economic reform. Following arguments that FDI both led to increasing disparities and may have been an obstacle to local domestic growth, I apply a quantile regression technique, which explicitly takes the regional distribution of foreign investment into account. The results, surprisingly, provide supportive evidence both for the view that foreign investment in some cases suppressed domestic growth rather than spurring it, as well as for the current efforts of the Chinese government to channel a larger portion of foreign investment into poorer regions. The paper therefore calls for further domestic liberalization as appropriate policy towards international direct investment.