Enterprises overseas cluster and foreign direct investment location choice of new entrants：An empirical research based on micro enterprises data in Zhejiang province

Abstract

In this paper, we focused on the relationship of the overseas clusters and location choice for Chinese enterprises' foreign direct investment, both of which have recently become hot topics of theory research and policy concern. For there exists a big difference of economy condition in different host countries, China's enterprises pay attention to specific economic factors of host countries in location choice of foreign direct investment, and host countries' economic scale, per capita income, trade openness, resource conditions and other elements constitute the factors influencing location choice of enterprise' foreign direct investment. In addition,the overseas cluster of home countries' enterprises in host countries is another significant factor that cannot be ignored for enterprise' decision of foreign direct investment location choice. This paper structured the binary choice model by using the micro data of enterprises in Zhejiang province, and used the number of foreign direct investment projects in certain host country of Zhejiang's enterprises to measure the overseas cluster in that country. Based on these data, an empirical study was conducted in this paper and found that overseas enterprise cluster is an important location advantage for the host country to attract foreign direct investment from new enterprises. Furthermore, this advantage plays a greater role in countries that have richer resources and larger market scales. What is more, in order to eliminate the endogenous regression problem, the geographic distance was taken as the instrumental variable of enterprises' overseas cluster and a similar conclusion through two stage binary choice model was reached. We also found that the positive influence of enterprise overseas clusters on the attraction of new enterprises' foreign direct investment exist in both developed and developing host countries. The results of this paper indicated that there is self-continuity in the direct investment of foreign enterprises overseas cluster and reflected the importance of information in location choices for enterprises' foreign direct investment as well.