Origin effects, spatial dynamics, and redistribution of foreign direct investment in Guangdong, China

Based on a panel regression analysis and interviews with 70 foreigninvested enterprises (FIEs) in 2009, this paper compares the spatial dynamics and redistribution of foreign direct investment (FDI) from Hong Kong, Taiwan, Japan, and the US in Guangdong Province. We found that FDI in Guangdong tends to favour cities closer to Hong Kong, with lower wage rates, better market potential, and more preferential policies and to follow the agglomeration of FDI from the same origin. The diverse home-based characteristics have resulted in the varied pathways of spatial redistribution of FDI. Hong Kong FIEs have been searching for lower-cost regions given the rise of production costs and tightened environmental regulations. In contrast, the redistribution of FIEs from Japan and Taiwan are more sensitive to their home-based business linkages, whereas Japanese and the US FIEs tend to value access to the domestic market and to expand in large cities outside Guangdong. In all, this study suggests that FDI is not a homogenous entity. An investment source approach of its distribution strategies is more comprehensive in analysing their location choices. Both quantitative and qualitative evidence have reiterated the significance of inter-firm networks and agglomeration with salient origin effects. This study also helps in designing policies and practices that are tailored to investment from different sources.