Foreign Direct Investment Location Decisions: Evidence from China

Aiming at globalizing their businesses, many companies are expanding their establishments in different countries and regions. Management often makes business decisions on foreign direct investment (FDI) and location choice. This decision-making process is complex and often affected by tax and nontax factors. While some researchers find that the choice of location for FDI is not affected by the income tax rates of the region where the investments are located, other studies indicate that income tax rates do affect the choice of investment location. The effectiveness of a tax holiday in attracting FDI is also a controversial issue, as some studies provide support for it while others do not. Further analyses show that while the subjects do not rate the five tax investment factors differently when considering whether to invest in China and when considering business locations in China once the decision to invest in China is made, seven of the 13 nontax factors are rated differently.