Please use this identifier to cite or link to this item: https://hdl.handle.net/1959.11/31255
Title: Local financial intermediation and foreign direct investment: Evidence from China
Contributor(s): Yao, Yao (author); Chen, George S  (author)orcid ; Zhang, Lin (author)
Publication Date: 2021-03
Early Online Version: 2020-12-07
DOI: 10.1016/j.iref.2020.12.003
Handle Link: https://hdl.handle.net/1959.11/31255
Abstract: We examine the causal relationship between local financial intermediation (LFI) and foreign direct investment (FDI) in China. Using the only data available on LFI from 166 Chinese cities over the period 2003–2009, and addressing endogeneity in the relationship, we find that a 1% improvement in LFI raises FDI in a representative city by 3.77%. Use of city-level data allows us to explore heterogeneity in the relationship across cities. When we do this, we find that the relationship is much stronger in inland cities than in coastal cities. Conceptually, our findings suggest that deeper LFI mitigates the cost of doing business in economically backward inland cities. Methodologically, our findings are robust to different estimators, model specifications, and measures of FDI. From a policy perspective, we show that improving LFI can be a preferred alternative to concessional arrangements for attracting FDI. Our finding suggests a new transmission channel of LFI in economic development across the emerging markets.
Publication Type: Journal Article
Source of Publication: International Review of Economics & Finance, v.72, p. 198-216
Publisher: Elsevier BV
Place of Publication: Netherlands
ISSN: 1873-8036
1059-0560
Fields of Research (FoR) 2020: 380110 International economics
350203 Financial econometrics
440703 Economic development policy
Socio-Economic Objective (SEO) 2020: 150208 Monetary policy
150299 Macroeconomics not elsewhere classified
150203 Economic growth
Peer Reviewed: Yes
HERDC Category Description: C1 Refereed Article in a Scholarly Journal
Appears in Collections:Journal Article
UNE Business School

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