WTO accession and foreign direct investment in China
| Date | 06 June 2008 |
| Published date | 06 June 2008 |
| DOI | https://doi.org/10.1108/17544400810884709 |
| Pages | 136-147 |
| Author | Junjie Hong |
| Subject Matter | Economics |
WTO accession and foreign direct
investment in China
Junjie Hong
School of International Trade and Economics,
University of International Business and Economics, Beijing, China
Abstract
Purpose – The purpose of this paper is to attempt to investigate the location determinants of foreign
direct investment (FDI) and examine the impact of WTO accession.
Design/methodology/approach – Based on an 11-year panel dataset on FDI and urban
characteristics across Chinese cities, the paper employs a random effect panel data model to study
the impact of WTO accession on FDI.
Findings – The estimation results provide supportive evidence on WTO accession effects on FDI
location. The importance of agglomeration economies increases, while the influence of market size and
government preferential policies has decreased after WTO accession. Cheap labor plays an
increasingly important role, but labor quality and roadway transport conditions lose their significance.
Originality/value – This study contributes to the existing literature by identifying the WTO
accession effects on FDI location choices in a transitional economy.
Keywords Foreign direct investment, Overseas trade,China
Paper type Research paper
I. Introduction
Since the economic reform and opening up in the late 1970s, China has opened its door
to foreign direct investment (FDI) gradually. At the early stage, the opening-up policies
were limited to some special cities, such as special economic zones (SEZs) and opening
coastal cities (OCCs). Figure 1 shows that this stage (prior to 1991) is characterized by a
slow increase in absolute amount of FDI. Difficulty in entering the Chinese market and
the non-convertibility of the Chinese yuan were possible barriers to foreign
investments. The second stage (1992-1998) witnessed a substantial increase in
foreign capital into China. The opening up center moved from Pearl River Delta to
Yangtze River Delta. Figure 1 shows that annual inflow of FDI increased sharply after
1992. However, the increase rate slowed down in 1997, and the absolute amount even
decreased in 1998.
The third stage began when China signed the WTO accession agreement with the
USA in 1999. This is a key step for China’s entry into the WTO, and could be regarded
as a starting point of China’s WTO accession. The Chinese market is further open to
FDI. Foreign investors are now allowed to enter some sectors (especially service
sectors) that were highly restricted previously. In order to comply with WTO’s rules,
the Chinese government has to accelerate the legislative and institutional reforms,
make polices stable and predictable, remove special protections on state-owned
enterprises, and make impartial, competitive business environment and unified market
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1753-4408.htm
The author would like to thank two anonymous referees for their constructive suggestions and
comments. Any remaining errors are those of the author.
JCEFTS
1,2
136
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 1 No. 2, 2008
pp. 136-147
qEmerald Group Publishing Limited
1753-4408
DOI 10.1108/17544400810884709
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