The impact of administrative boundaries on foreign direct investments in China's Yangtze River Delta region

Abstract

We investigate the theoretical mechanisms that underpin the influence of administrative boundaries on foreign direct investment (FDI), taking into account the dual impact of administrative boundary effects. Using panel data from Yangtze River Delta counties collected between 2011 and 2019, we empirically investigate administrative boundaries' effect on FDI within these regions. The findings show that from 2011 to 2019, China's Yangtze River Delta had a consistently positive but moderate global Moran's I index, indicating limited spatial interconnectivity among county-level FDIs. Inter-county FDI in the Yangtze River Delta is hampered by provincial administrative boundaries, with cross-provincial FDI disparities greater than those within the same province. Notably, the Anhui-Zhejiang border experienced a temporary shift from a negative to a positive effect coefficient between 2011 and 2015, whereas other interprovincial boundaries consistently had negative coefficients. The FDI boundary barrier effect is attributed to natural barriers, administrative boundaries, and government performance assessments. In contrast, the boundary intermediary effect results from economic activity diffusion, inter-regional industrial relocation, and inter-regional geographical interaction. This study examines the impact of administrative boundaries on regional economic development through the lens of FDI, intending to provide useful insights for promoting balanced regional development in China and other developing countries. Furthermore, it guides international investors on their ventures in China, attempting to enrich their decision-making framework with strategic perspectives on the country's investment environment.