DP4978 Trade Costs and Location of Foreign Firms in China

Author(s): Mary Amiti , Beata Smarzynska-Javorcik

Publication Date: March 2005

Keyword(s): foreign direct investment , trade costs , market access , supply access

JEL(s): F10 , F23

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP4978.asp

This study examines the determinants of entry by foreign firms, using information on 515 Chinese industries at the provincial level during 1998-2001. The analysis, rooted in the new economic geography, focuses on market and supplier access within and outside the province of entry, as well as production and trade costs. The results indicate that market and supplier access are the most important factors affecting foreign entry. Access to markets and suppliers in the province of entry matters more than access to the rest of China, which is consistent with market fragmentation due to underdeveloped transport infrastructure and informal trade barriers.