Barriers and Obstacles to Foreign Direct Investment into China's Hinterland Areas-A Case Study of Yunnan Province

摘要

In view of the fact that the dynamics of world trade, politics, and security fall increasingly under the influence of border regions the objective of this paper is to reveal barriers that limit FDI inflow to China's landlocked border province Yunnan. The investigated timeframe -from the initiation of the "Open up the West" strategy (2000) to just before the China-ASEAN Free Trade Area regulations (2010) become effective -is of tremendous importance as it reflects Yunnan's struggle to improve its economic situation with policies implemented by the Central Government to generate new growth poles and to pursue its strategic position as a "gateway to SE-Asia". This study uses novel dynamic panel data techniques to advance the econometric methodology used in studying the link between FDI and the selected determinants: Transport infrastructure, labour productivity, Gross Regional Product, trade openness, human capital and agglomeration within the context of Yunnan's second tier jurisdictions. This analysis provides a tool for developing appropriate policy recommendations that maximise the benefits of FDI while reducing its detrimental effects. The findings here suggest that Yunnan's initial condition, in particular its historical links, its mountainous terrain, and its being geographically surrounded by nations belonging to SE Asian's backwaters, was extremely weak to absorb FDI during the reform period. Certain variables such as trade openness and GPP appear to be robust under different specifications. However, variables such as human capital, agglomeration effects, infrastructure, and labour productivity are found to be insignificant for FDI attraction -even though different specifications of these exogenous determinants were estimated.