Determinants of City Choice of Foreign Direct Investment into China: The Role of Specialisation, Diversification and Competition Externalities

In this paper we study empirically the determinants of location of inward FDI in China at the city level using firm‐level data for the period 1999–2009. In particular, we focus on the role of specialisation, diversification and competition externalities having controlled for the extensive set of city and regional characteristics including the regional market potential. We estimate both the conditional and multinomial logit models. We find that agglomeration externalities play an important role in determining the location of inward FDI in Chinese cities.