Urbanization diseconomies in China: roles of temporary migrant workers in foreign direct investment location

Abstract

This paper investigates whether temporary migrant workers still attract foreign direct investment (FDI) in China nowadays after they played a strong magnet role for FDI in the last century. This paper tests the hypothesis that foreign firms reduce investments to avoid urbanization diseconomies from temporary migrants when China is experiencing rapid urbanization in the 2000s, with the urbanization rate raised from 36% in 2000 to 59% in 2017. This research employs spatial statistics and analyses to examine the change in the spatial inequality of temporal migrant workers and FDI. This research also uses regression models to investigate whether temporary migrant workers still attract foreign direct investment (FDI) in China nowadays. Temporary migrants are increasingly concentrated in the Pearl River Delta, the Yangtze River Delta, and the Bohai Rim Region of the eastern region, and Chengdu in the western region. The results indicate that a one-person increase in temporary migrant workers is associated with 259 dollars decrease in FDI, suggesting that FDI might reduce with increased migrants to avoid urbanization diseconomies from these cities, helping policymakers develop urbanization and migration policies to optimize labor allocation and promote industrial upgrading, developing peripheral cities.