Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China

Banco de Espana Research Paper No. WP-0616

UC Santa Cruz Center for Int'l Econ (SCCIE) Paper No. 05-06

23 Pages Posted: 3 May 2005

See all articles by K. C. Fung

K. C. Fung

University of California at Santa Cruz

Alicia García-Herrero

Bruegel; Hong Kong University of Science & Technology (HKUST) - HKUST Institute for Emerging Market Studies (IEMS); Natixis

Hitomi Iizaka

University of California at Santa Cruz

Alan Siu

The University of Hong Kong - School of Economics and Finance

Date Written: June 26, 2006

Abstract

In this paper, we examine whether hard infrastructure in the form of more highways and railroads or soft infrastructure in the form of more transparent institutions and deeper reforms lead to more foreign direct investment (FDI). We use data of FDI from the United States, Japan, Hong Kong, Taiwan and Korea to various regions of China from 1990 to 2002. We control for the standard determinants of FDI - regional market sizes, wage rates, human capital and tax policies. Then we add indices of hard and soft infrastructures. We found that empirically soft infrastructure consistently outperforms hard infrastructure as a determinant of FDI.

JEL Classification: F21, F23, F36, F43

Suggested Citation

Fung, K.C. and Garcia-Herrero, Alicia and Iizaka, Hitomi and Siu, Alan K. F., Hard or Soft? Institutional Reforms and Infrastructure Spending as Determinants of Foreign Direct Investment in China (June 26, 2006). Banco de Espana Research Paper No. WP-0616, UC Santa Cruz Center for Int'l Econ (SCCIE) Paper No. 05-06, Available at SSRN: https://ssrn.com/abstract=710584 or http://dx.doi.org/10.2139/ssrn.710584

K.C. Fung (Contact Author)

University of California at Santa Cruz ( email )

Santa Cruz, CA 95064
United States
831-459-3273 (Phone)
831-459-5900 (Fax)

Alicia Garcia-Herrero

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

Hong Kong University of Science & Technology (HKUST) - HKUST Institute for Emerging Market Studies (IEMS) ( email )

IAS 2019, Lo Ka Chung Building,
Lee Shau Kee Campus, HKUST
Clear Water Bay, Kowloon
Hong Kong

Natixis ( email )

France

Hitomi Iizaka

University of California at Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States
408-476-6645 (Phone)

Alan K. F. Siu

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
+852 2859 2192 (Phone)
+852 2548 1152 (Fax)

HOME PAGE: http://www.econ.hku.hk/~asiu

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