Can the agglomeration of producer services boost China’s ‘going out’?

Abstract

ABSTRACT As China has been encouraging enterprises to ‘go global’ and actively promoting the optimization of industrial structure, it is important to discuss the impact of its outward foreign direct investment (OFDI) considering producer service industry agglomeration. For analysing the mechanism by which the agglomeration of producer services affects China’s OFDI, this study uses inter-provincial panel data from 2004 to 2019 and a spatial Durbin model to empirically test the impact of producer service agglomeration on OFDI. We show that the agglomeration of producer services significantly promotes OFDI in a particular region through economies of scale and enterprise productivity improvement. And it also significantly promotes OFDI in its neighbouring regions. The effect of producer service agglomeration on OFDI shows regional heterogeneity. Namely, the agglomeration of producer services in the eastern region promotes the OFDI in this region and it has not had a significant impact on the OFDI in neighbouring regions. Further, the agglomeration of producer services in the central and western regions does not have a significant effect on their OFDI and that of neighbouring regions.