Title

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

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