جایگاه تصمیم گیری در تولید سرمایه گذاری مستقیم خارجی در چین: پیامدهایی از الحاق چین به سازمان تجارت جهانی

This study aims at investigating empirically the spatial location development of foreign direct investment (FDI) in Guangdong in the context of a core-periphery system (CPS) using firm (micro)-level data. Attempts would be made to explain (1) the significance of agglomeration effects arising from CPS, especially that of the small/medium businesses (SMEs); (2) to exploit agglomeration economies, firms location decisions would follow a relationship described by the gravity model in choosing their plant locations. With given distance from the core, firms would prefer sites with higher firm agglomeration; (3) the degree of completeness of regional division of labor (plant relocation) being affected by institutional factors in the form of trade constraints (quota). In this connection, China’s WTO accession is expected to significantly affect FDI firm location decisions, in particular those previously subject to trade constraints; and (4) geographical hardship of FDI locations transmitted in the form of transaction costs is significant to firm location choice. The hypotheses were tested by utilizing a 1998-database consisting of a population of 30,195 manufacturing joint ventures in Guangdong in which 8985 firms investing in electronics, garments, and textiles were chosen. Special reference will be given to the experience of outward relocation of Hong Kong manufacturing enterprises in the Hong Kong (core)–Pearl River Delta (periphery) region. Conclusion derived from the study and respective policy implications with regard to further facilitation of FDI into the region will be discussed. The implications of China’s WTO accession on FDI flows on location choice were elaborated.

The classical theory for profit maximization1 describes the basic motives of foreign direct investment (FDI) or firms to invest abroad as the exploitation of the market imperfections and prospective gains in operation efficiency (Hymer, 1976 and Kindleberger, 1970). In fact, such motives would involve firms’ strategic decision to identify a favorable investment environment (location) from abroad for their investment. The compatibility of the host country in geographical proximity, among others, is considered as a crucial external component in the attraction of FDI by the host country (Kravis & Lipsey, 1982). Following the theories of the pattern of land use well consolidated and described by Alonso (1964) and the avocations of economies and diseconomies of urban agglomeration studies (Henderson, 1988, Krugman, 1991 and Richardson, 1995), the function of a city core (center) and its relations with the peripheral (suburban) areas can be well conceived. Such a core-periphery (CP) relation is a system where the pattern of land use can be described by the land-saving activities to stay at the core (center) with the land-intensive activities to move to the nearby peripheries (sub-urban) for cost-savings purpose. As a typical case of firm relocation from the city core to its suburban, the causes and pattern of relocation of manufacturing firms from New York to its peripheral areas was intensively studied by the American Regional Plan Association in the late 1960s2 (Hall, 1960). To emphasize on the effects of agglomeration economies in city growth, Quigley (1998) considered four major factors, namely, scale economies, shared inputs, transaction costs, and statistical economies, have contributed to the agglomeration implications of size and diversity in cities.3 Agglomeration effects (or thick market effects) to generate externalities in production leading to short- and long-run externalities and supply and demand (customer) externalities were well pursued (Bartlesman, Caballero & Lyons, 1994; Caballero & Lyons, 1992). Evidence suggested that such agglomeration (externalities) effects of industries had accounted for the prevalence of scale economies of the industry (Paul & Siegel, 1999). Hence, the effects of agglomeration economies/diseconomies generated by a CP relation following Krugman’s (1991) view, would be important in directing firms’ investment with respect to their plant site location decisions. Then, how far apart in distance between the manufacturing facilities (relocated to the periphery) and service facilities (to remain in the center) would be kept will be determined by balancing various transaction costs associated with the economies and diseconomies due to agglomeration. In this connection, choosing a favorable location for investment in the context of CP-system should become a prime concern of business firms in realizing their basic business motives. Firm location choice should also have significantly affected firms’ strategy and competitiveness especially in a global context. Porter (1990) forwarded a theory of competitiveness, which emphasized the significant role of industry location in competition and competitiveness. The subsequent advancement of the cluster theory and the development of the “cluster” concept have created new management agendas that are rarely recognized4 (Porter, 1998). With respect to firm location decisions, a firm, in fact, is seeking for its competitive advantage, both lying outside of the company and its industry, via the presence of “clusters” or “critical masses of unusual competitive success”. Institutional factors, such as trade constraints (e.g., quota), would affect the location of plant sites, and hence FDI diversity. Given China’s WTO accession in October, 2001 and the subsequent eventual elimination of trade constraints imposed by importing countries, industries or firms previously received quotas restrictions (or privileges) will have to compete equally and more openly as the others. These industries would be expected to adjust their strategies of location choice so as to exploit the agglomeration benefits arising from the CP-system to save costs. The significance of small/medium enterprises (SMEs) and their contributions have been well recognized and studied via various managerial and economic perspectives, such as in production activities, innovation and technological change, and industrial development and evolution. 5 From the existing literature, it follows that the small businesses seemingly demonstrate unique behavior and supposedly, in their investment location decisions as well. From a cost-saving point of view, SMEs tend to locate closely with other firms (clustering) and nearer the core (by gravity distance) so as to exploit the agglomeration economies derived from the CP-system. Such a firm location behavior due to firm size and trade constraint would be further reinforced after China’s WTO accession. By then, SMEs especially will be exposed to a more open, competitive world market in which SMEs are quite vulnerable. This study thus aims at investigating at an empirical level with firm (micro)-level data, the spatial location development of FDI and firm location choice so as to exploit the advantages arising from agglomeration (externalities) especially for that of SMEs and industries subject to trade constraints by using the experience of manufacturing FDI in the Hong Kong (HK)–Pearl River Delta (PRD) region during the past two decades.6 In specific, the following research hypotheses would be examined. Hypothesis 1. Firm location or investment-site decisions would be affected by both agglomeration economies/diseconomies generated by the core and the comparative advantages of inputs provided by the host sites within the CP-system. To exploit the agglomeration economies in the system: (a) location choice of firms would follow a relation described by the gravity model, given transportation conditions; that is, the location of investment is inversely related to the distance of the location from the core; and (b) given the above, firms would prefer to locate in industry clusters (such as sites with high densities or clustering effects7) as favorable investment sites. These sites would normally be the satellite cities. Hypothesis 2. Small firms (SMEs) may act distinctively in their location decisions as compared to large firms. SMEs are more dependent on service facilities and networkings to be provided by the city core or industry clusters. It is, therefore, expected that firms of smaller size would prefer sites nearer the core and with larger industry clusters. This tendency should contribute and enhance the formation of CP-system. Hypothesis 3. Institutional factors, such as quota constraints, would also affect the strategic choice of firm location. Trade constraints are expected to affect the degree of completeness of relocation between the core and its periphery. This is especially important given China’s WTO accession and the subsequent lifting of quota constraints for the industries by importing countries. Hypothesis 4. Natural geographical hardship transmitted in the form of transaction costs affects firm location choice. The merits of this near-population firm (micro)-level study,8 other than to produce results of higher confidence, will contribute to existing literature by: (1) validating the hypotheses of agglomeration effects generated by CP-system via location identification; (2) substantiating the degree of completeness in FDI relocation in CP-system at the industry level by examining the impacts of trade (quota) constraints on firm location choice and its subsequent possible move after China’s accession into WTO; (3) discriminating the location behavior of SMEs versus large firms, which is made possible only by firm (micro)-level data; and (4) verifying the effects of transaction costs, both in terms of gravity and natural geographical factors, at the firm level. Conclusion derived from the study and respective policy implications with regard to further facilitation of FDI into China will be discussed.