Information Void Bridging and FDI Location Distribution

【Authors】

LI Sihai & LI Zhen

【WorkUnit】

LI Sihai （Zhongnan University of Economics and Law, 430073; West Yunnan University of Applied Sciences, 671000）; LI Zhen （Zhongnan University of Economics and Law, 430073）

【Abstract】

Understanding the determinants of FDI location choice is of great practical significance for China’s continuous efforts to promote high-quality FDI inflows. This paper investigates the impact of government public data openness on FDI location choice by using foreign business registration data from more than 450 subsectors in 285 prefecture-level cities. 
The study shows that public data openness significantly promotes FDI inflows primarily by reducing the operational information cost and institutional transaction cost of FDI enterprises. This mitigates the public information disadvantage faced by these enterprises. After public data openness, FDI firms expand their operational activities in China and face a lower probability of administrative penalties. The study also shows that higher data quality, better platform construction, and stronger government policy support for public data openness enhance its FDI attraction effect. Further analysis shows that public data openness changes the equity configuration and spatial choice of FDI entry. Specifically, it encourages FDI firms to enter as sole proprietors （rather than joint ventures） in terms of equity mode, and reduces the tendency of peer agglomeration. Finally, the study shows that public data openness attracts FDI beyond its direct benefits; it also reinforces the attractiveness of local resource-based and institutional location advantages. 
This study makes several contributions to the existing literature. First, this paper incorporates the quality of the public information environment into the framework for explaining the Lucas paradox and identifying key factors in attracting FDI to developing countries, providing direct causal evidence from the world’s largest developing country. It proposes a new interpretation of “equal treatment for foreign investment in the digital economy era” and a new paradigm for “information-empowered foreign investment policies.” Second, this paper expands research on the micro-level strategic decision-making of foreign investment entry by analyzing foreign firms’ entry modes and geographical agglomeration. Third, this study reveals that regulating government behavior through information decentralization and strengthening government governance are key institutional arrangements for promoting foreign investment inflows, with China’s public data openness as a clear example.

JEL: D80, F23, P33

【KeyWords】

Public Data Openness, Public Information Environment, Foreign Direct Investment, Liability of Foreignness, Entry Mode