Information costs, agglomeration economies and the location of foreign direct investment in China¹

Abstract

He C. (2002) Information costs, agglomeration economies and the location of foreign direct investment in China, Reg. Studies 36, 1029-1036. Foreign investors suffer from adverse information asymmetry and face internal and external uncertainties in host economies. Better access to information and a variety of agglomeration economies could attenuate the disadvantages that foreign investors encounter. Statistical results strongly buttress the argument that foreign investors are inclined to favour such locations that could minimize information costs and offer a variety of agglomeration economies. Theoretical and policy implications and further research directions are discussed at the end.Information costs, Agglomeration economies, Foreign direct investment, China,

Impact of E-Government on Transaction Cost and FDI Inflows: A Proposed Conceptual Framework

“…In their totality, both increase the cost of doing businesses and thus may impede Foreign Direct Investments. Since uncertainties and information asymmetry in FDI location choice increase information cost (Matambalya & Wolf, 2001); it is logically suffices to argue that FDI locations are informational driven (He, 2002;Mariotti & Piscitello, 1995). I have argued in the literature section that as far as the purpose and motivation of direct involvement by a direct investor in the host country is a strategic long term interest with the enterprise to exert a significant degree of influence on the management of the enterprise (OECD, 1992(OECD, , 2008; then gaining such a control will necessarily imply direct interactions with host country institutions especially in complying with some regulatory requirements.…”

“…Due to high information cost that foreign investors have to incur relative to their counterparts local investors; the location decisions behaviours of foreign firms are informational driven (Goldstein & Razin, 2006;Mariotti & Piscitello, 1995). As a location response to the information asymmetry and uncertainties in foreign markets; foreign investors are likely to choose investment locations which offer better access to information in order to minimize their information cost (Azubuike, 2006;He, 2002;Mariotti & Piscitello, 1995). On the other hand, recent international experience has shown that excessive administrative procedures required to establish and officially operate a foreign business impede FDI inflows (Morisset & Lumenga-Neso, 2002).…”

E-Government in Marketing a Country: A Strategy for Reducing Transaction Cost of Doing Business in Tanzania

“…Although barriers to FDI inflows in host countries are numerous, the focus of this study is on information accessibility and excessive bureaucratic procedures in the approval process. It has been argued that FDI locations are informational driven (He, 2002;Mariotti & Piscitello, 1995) and thus foreign investors favor those location which are likely to minimize their information and entry costs (He, 2002;Morisset & Neso, 2002). Moreover, it has been argued that time required in obtaining necessary business licenses, permits and approvals may influence the cost-efficiency of a location both in terms of time and money (Cho, 2003).…”

When in Rome? Examining the Institutional Determinants of Agglomeration for Foreign Entrants.

“…With respect to the agglomeration decisions of foreign firms, what little empirical work that exists suggests that the location decisions of foreign entrants are subject to many of the same forces that impact domestic firms (e.g., Woodward & Rolfe, 1993;Braunerhjelm & Svensson, 1996;6 Barrell & Pain, 1999;Shaver & Flyer, 2000;He, 2002;Chung & Song, 2004;Nachum & Wymbs, 2005). In contrast to existing studies however, we argue that in addition to the traditional firm-level drivers of agglomeration, foreign entrants also factor in the institutional environments of the host and home countries when deciding whether to agglomerate.…”