The Crowding in/out Effects of FDI against the Background of Local Governments' Attracting Investment by Land

Liu Qianwen, Yan Xiao

Journal of Finance and Economics Vol. 42, Issue 01, pp. 17 - 29 (2016)  DOI:10.16538/j.cnki.jfe.2016.01.002

Abstract

Under a condition of narrowing space for tax preferences,local governments in pursuit of economic growth regard attracting investment by land as an important means.Against this background,this paper systematically studies the additional effect of local governments' attracting investment by land on the relationship between FDI and domestic investment from the theoretical and empirical perspectives through the city data at the prefecture level or above from 2004 to 2007.Firstly,theoretical analysis shows that local governments are encouraged to press the prices of land for industrial use and give high-efficiency firms more preferential treatment;it may amplify the crowding in/out effect of FDI on domestic investment.Secondly,empirical result shows that attracting investment by land effectively stimulates the increase in local whole investment size.Attracting investment by land intensifies the crowing-in effect of FDI nationwide.In terms of urban agglomeration,FDI has stronger crowding-in effect in developed cities,and the role of attracting investment by land is not significant;in cities at a medium level of development,attracting investment by land plays the most significant role and thus strengthens the crowding in effect of FDI;in other cities,the effects of attracting investment by land and FDI are relatively not significant.

Keywords

local government; attracting investment by land; FDI; crowding-in effect; crowding-out effect