The Analysis of Local Governmental Impact on FDI's Location Selection

How does local government influence the location selection of FDI?This is a new subject in the FDI location theory.This paper studies this subject in the framework of game theory.Based on the Hotell model,it concludes that the transaction cost has determined the fame effect of the local government in the game between foreign investors and local government.The results show that compared with the preferential policy for FDI,fame effect may be an important factor explaining the regional difference of FDI,which has long been neglected.