Analysis of the Effect of CEPA on FDI to Mainland China from Hong Kong

Abstract

Regional economic integration has got great achievements both in practice and theory since 1980s, which promotes the progress of the world economic liberalization. Besides the trade creation and diversion effect which had been researched widely, regional economic integration agreement also would create investment among members, and this dynamic investment effect now has been the main factor which pushes the progress of integration. Based on DID model and Gravity Model, this paper examines the influence of CEPA on FDI to Mainland China from Hong Kong by setting matched group, using 1998-2013 FDI from Hong Kong as sample. The conclusion is that CEPA and its supplemental agreements play a positive role on attracting Hong Kong FDI to Mainland China. With the transformation of development model in Mainland China, Hong Kong will invest more capital in knowledge-intensive Service industries in the future.

International Investment Agreements Provisions and Foreign Direct Investment Flows in the Regional Comprehensive Economic Partnership Region

“…Medvedev (2012) showed that the preferential trade arrangements had a positively significant impact on FDI inflows of participating countries. Similarly, the mainland and Hong Kong closer economic partnership arrangement had a positive effect on attracting FDI from Hong Kong to the mainland of China (Wang 2016).…”

“…In light of the presence of IIAs more recent studies have focused on the relationship between the number of bilateral investment treaties and treaties with investment provisions and foreign direct investment. These studies usually suggested their strong relationship as rigorous as possible (Colen et al 2016;Desbordes and Vicard 2009;Medvedev 2012;Nguyen et al 2020;Wang 2016). Moreover, Desbordes and Vicard (2009) indicated that the BITs with the quality of political relation between signatory countries had a positive and significant effect on bilateral foreign direct investment.…”

“…The BITs provided a chance to encourage and/or to discourage FDI. Specifically, the argument that the related-investment provisions in regional economic integration caused a change in foreign direct investment flow to member countries has been conducted in empirical studies by Medvedev (2012) and Wang (2016), among others. Medvedev (2012) showed that the preferential trade arrangements had a positively significant impact on FDI inflows of participating countries.…”