PROGRESS IN GEOGRAPHY ›› 2016, Vol. 35 ›› Issue (11): 1369-1380.doi: 10.18306/dlkxjz.2016.11.007

• Orginal Article • Previous Articles     Next Articles

Interaction between the spatial dynamics of foreign direct investment and domestic industrial change in Chinese prefecture-level cities

Qian LUO1,2(), Canfei HE1,2,*(), Qi GUO1   

  1. 1. College of Urban and Environmental Sciences, Peking University, Beijing 100871, China
    2. Peking University-Lincoln Institute Center for Urban Development and Land Policy, Beijing 100871, China
  • Online:2016-11-25 Published:2016-11-25
  • Contact: Canfei HE;
  • Supported by:
    National Science Fund for Distinguished Young Scholars, No.41425001;National Natural Science Foundation of China, No.41271130


Technological progress and institutional change are key drivers for industrial development. The rapid development of information and communication technology has weakened the demand of industrial production for local resources and promoted the free flow of capital, knowledge, labor, and other factors of production in a wider area. The "temporal and spatial compression" formed by technological evolution has further changed the pattern of global interests and led to institutional reform aimed at regional integration and trade liberalization. This loosens the restriction of trade costs on location options for productive activities and provides more possibilities for cross-regional production linkages and the establishment of global production network (GPN). With the formation of GPN, transnational enterprises (TNE) tend to locate in regions with cheaper labor cost, more preferential policies, and greater market potential in order to optimize their cost-benefit of operation on a global scale by means of foreign direct investment (FDI). Under this trend, developing countries become essential destinations for FDI, which in return makes FDI a key factor that affects the industrial change of host countries through spillover and competition effects, for example. Technological proximity between foreign and domestic parts in one industry also contributes to enhancing or weakening the effects of spillover and competition, then influences the interaction between the spatial dynamics of foreign direct investment and domestic industrial change, and further exerts impacts on regional economic growth. Based on the theories of global production network and Evolutionary Economic Geography and using four-digit manufacturing data of China's prefectural-level cities in ASIFs from 1998 to 2008, this study analyzed the interaction between FDI spatial dynamics (including FDI enterprise entry and FDI enterprises exit) and domestic industrial change and the impact of technological proximity on FDI spatial dynamics and domestic industrial change by using qualitative and quantitative analysis methods. The results show that the entry and exit of TNEs both induced change of domestic industries, while the spatial dynamics of FDI demonstrated the most significant effect in central and western China, followed by eastern cities. FDI entry contributed more in promoting domestic industrial change than FDI exit in the Northeastern. Technological proximity between domestic industries and FDI industries mostly weakened the positive effect of different spatial dynamics of FDI on domestic industrial change, except for the entry of FDI during 1998-2003. From a regional perspective, technological proximity in eastern cities showed positive effect on both entry and exit of FDI, suggesting a typical example of "strategic coupling." On the other hand, in middle, western and northeastern cities, higher technological relatedness has become an essential reason that prevents FDI from promoting the development of domestic industries.

Key words: global production network, evolutionary economic geography, spatial dynamic of FDI, domestic industrial change, technological proximity, China