Why China has been successful in attracting foreign direct investment : a transaction cost approach
Document Type
Journal article
Source Publication
Journal of Contemporary China
Publication Date
1-1-1998
Volume
7
Issue
17
First Page
21
Last Page
32
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.
DOI
10.1080/10670569808724302
Print ISSN
10670564
E-ISSN
14699400
Publisher Statement
Copyright © 1998 Carfax Publishing Ltd
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Fan, C. S. (1998). Why China has been successful in attracting foreign direct investment: A transaction cost approach. Journal of Contemporary China, 7(17), 21-32. doi: 10.1080/10670569808724302