ABSTRACT
In 1978, China introduced the open door policy, inviting foreign capital and advanced technologies to drive economic development in China. 2 Foreign direct investment (FDI) has become one of the most important sources contributing to a sustained long-term growth in developing countries. 3 It not only brings employment to recipient countries but also acts as a channel of technology, management and marketing skills, as well as export outlets. Certain sources of FDI may channel more technology and advanced knowledge than others. For example, direct investments from the US and Japan tend to be in capital-intensive sectors, bringing in more technology, whereas direct investment from Hong Kong and Taiwan are more labor-intensive, generating more growth on the employment side. As such, Fung et al. (2002, 2005), utilizing China provincial data from 1991 to 1997, find that each source of FDI with different characteristics is attracted by different FDI determinants to various degrees. In particular, infrastructure is a very important determinant for Hong Kong and Taiwan FDI but is less crucial when it comes to FDI from Japan and the US. Due to the job-rotation nature of Japanese working culture, labor quality, on the other hand, is more important to direct investment from Japan than those from the US, Hong Kong, and Taiwan. Labor cost is more important to Taiwan and Hong Kong direct investment, possibly due to its labor-intensive nature of investment from these countries.
