Bilateral Rent‐Seeking and Growth of FDI Inflow in China: Theory and Evidence

21 Pages Posted: 6 May 2020

See all articles by Keng Shu

Keng Shu

Zhejiang University - Department of Sociology

Chien‐Chiang Lee

Nanchang University

Weiping Li

City University of Hong Kong

Jim Huangnan Shen

University of London, School of Oriental and African Studies (SOAS), Economics; Center for International Development, Harvard Kennedy School, Harvard University

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Date Written: April 2020

Abstract

This research proposes a new theory called bilateral rent‐seeking to explain the dramatic growth of foreign direct investment (FDI) inflow into China over the past several decades. We construct a Nash bargaining model to illustrate the relevance of how the reciprocal relationship between the local state and foreign investors leads to the greater incentives for the latter to invest in the local market, thus resulting into the huge FDI inflows into the domestic market in China in the past several decades. The empirically evidence presented in the end is broadly consistent with the theories proposed in this paper.

JEL Classification: D21, D72, L52

Suggested Citation

Shu, Keng and Lee, Chien‐Chiang and Li, Weiping and Shen, Jim Huangnan, Bilateral Rent‐Seeking and Growth of FDI Inflow in China: Theory and Evidence (April 2020). Contemporary Economic Policy, Vol. 38, Issue 2, pp. 359-379, 2020, Available at SSRN: https://ssrn.com/abstract=3593693 or http://dx.doi.org/10.1111/coep.12459

Keng Shu (Contact Author)

Zhejiang University - Department of Sociology ( email )

38 Zheda Road
Hangzhou, Zhejiang 310058
China

Chien‐Chiang Lee

Nanchang University

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, 330031
China

Weiping Li

City University of Hong Kong ( email )

Tat Che Avenue
Hong Kong
Hong Kong

Jim Huangnan Shen

University of London, School of Oriental and African Studies (SOAS), Economics ( email )

London, WC1E 7HU
United Kingdom

Center for International Development, Harvard Kennedy School, Harvard University ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

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