Why China has been successful in attracting foreign direct investment : a transaction cost approach

    Research output: Journal PublicationsJournal Article (refereed)

    10 Citations (Scopus)

    Abstract

    An important factor that has contributed significantly to China's economic growth over the past two decades has been the dramatic increase of foreign direct investment in China. Based on the observation that overseas Chinese have been the dominant supplier of foreign direct investment in China, this paper employs the transaction cost approach to provide an explanation as to why China has been successful in attracting foreign direct investment. It first describes and analyzes the economic 'institution' in China. Then it shows that overseas Chinese have a competitive advantage in investing in China because they have the experience and knowledge of operating their business in an 'institution ' that is similar to the 'institution' in China. Finally, the paper argues that some policies in China, such as the flexible contractual forms (particularly joint ventures) and the establishment of special economic zones, further reduce the transaction cost of doing business in China and contributed to attracting foreign direct investment.
    Original languageEnglish
    Pages (from-to)21-32
    Number of pages12
    JournalJournal of Contemporary China
    Volume7
    Issue number17
    DOIs
    Publication statusPublished - 1 Jan 1998

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    Cite this

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    title = "Why China has been successful in attracting foreign direct investment : a transaction cost approach",
    abstract = "An important factor that has contributed significantly to China's economic growth over the past two decades has been the dramatic increase of foreign direct investment in China. Based on the observation that overseas Chinese have been the dominant supplier of foreign direct investment in China, this paper employs the transaction cost approach to provide an explanation as to why China has been successful in attracting foreign direct investment. It first describes and analyzes the economic 'institution' in China. Then it shows that overseas Chinese have a competitive advantage in investing in China because they have the experience and knowledge of operating their business in an 'institution ' that is similar to the 'institution' in China. Finally, the paper argues that some policies in China, such as the flexible contractual forms (particularly joint ventures) and the establishment of special economic zones, further reduce the transaction cost of doing business in China and contributed to attracting foreign direct investment.",
    author = "FAN, {Chengze, Simon}",
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    Why China has been successful in attracting foreign direct investment : a transaction cost approach. / FAN, Chengze, Simon.

    In: Journal of Contemporary China, Vol. 7, No. 17, 01.01.1998, p. 21-32.

    Research output: Journal PublicationsJournal Article (refereed)

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    AB - An important factor that has contributed significantly to China's economic growth over the past two decades has been the dramatic increase of foreign direct investment in China. Based on the observation that overseas Chinese have been the dominant supplier of foreign direct investment in China, this paper employs the transaction cost approach to provide an explanation as to why China has been successful in attracting foreign direct investment. It first describes and analyzes the economic 'institution' in China. Then it shows that overseas Chinese have a competitive advantage in investing in China because they have the experience and knowledge of operating their business in an 'institution ' that is similar to the 'institution' in China. Finally, the paper argues that some policies in China, such as the flexible contractual forms (particularly joint ventures) and the establishment of special economic zones, further reduce the transaction cost of doing business in China and contributed to attracting foreign direct investment.

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