Does fiscal decentralization promote the inflow of FDI in China? |
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| Institution: | 1. China Economics and Management Academy, Central University of Finance and Economics, No. 39 South College Road, Haidian District, Beijing 100081, China;2. School of Economics and Business Administration, Beijing Normal University, No. 19 XinJieKouWai St., Haidian District, Beijing 100875, China;1. Department of Economics, Duke University, USA;2. Graduate School of Design, Harvard University, USA;1. School of Economics, Lanzhou University, Lanzhou 730000, Gansu, China;2. Canadore College, Canadore@Stanford, Scarborough, Ontario M1G 3T5, Canada;3. Faculty of Economics and Administrative Sciences, Cag University, 33800 Mersin, Turkey;4. College of Economics, Sichuan Agricultural University, Chengdu 611130, China;5. School of Life Sciences, State Key Laboratory of Grassland Agro-ecosystems, Lanzhou University, Lanzhou 730000, Gansu, China;6. Department of Medical Research, China Medical University Hospital, China Medical University, Taichung, Taiwan |
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| Abstract: | This paper tests whether China's fiscal decentralization promotes the inflow of foreign direct investment (FDI). Using provincial panel data during 1995–2002, we find that fiscal decentralization has a positive and significant effect on inward FDI, after controlling for other factors, and fixed time and province effects in both LSDV (Least squares dummy variables) regression and system GMM (Generalized method of moments) estimations that address the endogeneity of fiscal decentralization. The results are robust to six measures of fiscal decentralization that consider budgetary amount, extra-budgetary funds and inter-governmental transfers. A simple theory is offered to explain the findings. The results during 1987–1994 are further contrasted. Policy implications are also presented. |
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