Paper for the Summer Institute on Regional Integration 2008, Aug. 25-30
Global Institute of Asian Regional Integration (GIARI)

A Comparative Economic Analysis of
the Determinants of the Location of FDI
in China
by Japanese, Korean and Taiwanese Enterprises.

SHULI LIU
PhD Program in Graduate School of Asia-Pacific Studies (GSAPS)
Research Fellow of GIARIWASEDA UNIVERSITY
suellen0826@ruri.waseda.jp

Introduction
China has received more foreign direct investment, maintaining the high growthrate since the affiliation in 2001 to WTO. The direct investment to China is sharply
increasing now. When seeing from a contract basis, the total amount of direct
investment by the foreigners was 6,095.7,600 million dollars, and the total number ofinvestments was 189,057 cases from 2001 to 2005. From 1996 to 2000, it was
2799.8,400 million dollars and 104,621 cases. Therefore, it increased by 2 times and 1.8
times, respectively1 However, when seeing separately the provinces and cities which
accepted whole investments, there is a big difference between provinces and cities2.
Including Jiangsu and Zhejiang, mainly Shanghai area has occupied the 35% of all theamounts of direct investment. And when two provinces, Guangdong and Shandong,were added, the amount reached 61% of the whole. That is, the other 26 provinces of
the whole 31 Chinese provinces were able to invite only about 40% 3. Thus, although
the direct investment to China sharply increased after China joined in WTO, thetendency of concentration about location selection which many companies makeinroads into Chinese market has not yet changed a lot.
There is the tendency which selection of location concentrates more about thedirect investment by Japan (the 2nd place) and South Korea (the 5th place) andTaiwan (the 6th place), which occupy the higher rank of the investment, especially to
China. Especially, when a trial calculation is made with Gini coefficient about thedirect investment by Asian countries, Japan is 0.74 - 0.79, South Korea is 0.82 - 0.86,
and Taiwan is 0.73 - 0.79. Therefore, all these degrees of concentration are higher than
0.63 of a numerical value of all the direct investment to China. However, there is a
respectively characteristic tendency in selection of the location of many of these East
Asia areas. The Japanese companies are concentrated to three areas of the
Beijing-Tianjin

delta,

theShanghai-Jiangsu-Chang

River

delta,

andthe

Guangdong-The Pearl River delta. South Korean companies are concentrated on the
Bohai Bay in Liaoning-Shandong. Taiwan companies are located in a north direction
such as Jiangsu from Guangdong-Fujian, and central areas (provinces and cities). In
The author calculated it according to the "General conditions of the used foreign
direct investment" of the 2006 editions of "China Statistical Yearbook."
2 "Provinces and cities" are the division of local Chinese administration. It isequivalent to the "all prefectures" in Japan.
3 Based on the database of the Chinese business-affairs department, it was calculatedby the execution base of the amount of money of the direct investment to foreigncountries.
12

consideration of what kind of factors are selections of the location of such companies ofJapan, South Korea, and the Taiwan which make inroads into Chinese market?
The following arranges the precedence research which conducted positive analysis
about location selection of FDI. First, in order to see a rough tendency, generally the
regression analysis by the OSL model which uses a macroeconomic total value data isused frequently. As the example, the following one are given: Urata (1996), Cassidy
and Anderosso (2004), He (1999)（2005）,Wei・He・Wang (2002), and Mao・Wang（2005）
etc. Urata (1996) carried out the comparative analysis of the factors of location decisionof „all the developing countries and Asian nations‟ vs. „the direct investment fromJapan‟ by using databases, such as "Balance for Payments Statistics Yearbook" by IMF
and "World Tables, World Economic Indicators" by World Bank. Cassidy and Anderosso(2004) analyzed the factors of location of the amount of money of the direct investment
to China in 1996 by Japan by the OSL model, using the database of "The Overseas
Expansion Conspectus" of TOYO KEIZAI INC. and the data of the "China Statistical
Yearbook", etc. He (1999) (2005) analyzed the difference of factors of location by
dividing the form of the whole direct investment to China into companies such as
partnership, collaboration, and independent capital. Mao・Wang(2005) had conducted
positive analysis which limited to the Pearl River delta in China, focusing mainly on
the accumulation effect of the whole direct investment to China. Moreover, while thepositive analysis by a total value is used frequently, the direct investment to a foreigncountry is decision making by comapany level. That is, since it is selection by a discrete
choice, generally, the analysis which uses a so-called Logit Model is also conducted.
Especially many examples of analysis by the Conditional Logit Model which makes theattribute of a direct-investment-place-country an explaining variable are seen. The
example is ① Fukao ・Cheng（1996）. They presume the determination type of aninvestment place based on the number of cases of the notification according toindustrial classification and fiscal year classification and country classification of"Statistics of the notification of the direct investment to foreign countries" by theJapanese Ministry of Finance, by making GDP of direct-investment places, labor cost,
the degree of safety, human capital, trade friction, economical accumulation, andothers as an explanation variable. Furthermore, ② Fukao (1996) analyzes theselection factors of location places respectively by the almost same explaining variable
when aiming at the overseas location, domestic location, and the whole overseas anddomestic as a location place, by using the acquisition number of the industrial lot
according to industrial classification and fiscal year classification and prefectural3

classification of the "Location trend survey" by the Ministry of Economy, Trade andIndustry, besides "Statistics of the notification of the direct investment to foreigncountries." ③Fukao (1997) calculates the overseas and domestic location number
about an electrical equipment makers based on "Electric device and parts maker list"
by TOYO KEIZAI INC. and "Electric devices and parts makers list" by Electronic
Economic Research Institute, and when aiming at the overseas, and the wholeoverseas and domestic as a selection location, has also added accumulation factors,
such as the location accumulation number of Japanese electrical equipment makers,
and an output of industrial classification etc, to the explaining variable, besides theabove-mentioned attribute according to country. ④ Urata and Kawai (1999) consider
the importance and data availability as a direct investment place to overseas about
Japanese small and medium-sized companies, and analyze about four industries suchas fiber, general machines, electronic and electrical machinery, and transportation
machines by selecting 117 countries as an investment place. ⑤ Wakasugi (2005)
conducts positive analysis for the factors of location of the direct investment to China
in the 90s (1989-1998)

about human capital, administrative services, theinfrastructure, and the accumulation effect by dividing Japanese companies into six
industries. ⑥ Narisawa, Hirai, and Kitami (2003) verify the factors of the locationaccording to countries of the overseas of Japanese companies and the factors of thelocation of each industry according to domestic all prefectures by calculating theoverseas and domestic location number based on "the track record of the direct
investment to overseas" by the Ministry of Finance, and "the research of the trend ofindustrial locations" by the Ministry of Economy, Trade and Industry.
However, some problems are pointed out in these precedence researches. For
example:1.

The positive analysis of accumulation economy, information cost, and the location
decision by direct investment are inadequate.

2.

There is very little analysis of the location decision of FDI to China from theviewpoint of Asia. There are few actual proofs about the locations of direct
investment to China by Japan,and empirical study about South Korea and Taiwan
has not performed yet. And, Comparison between this three countries and areas
has not performed.

3.

There is no analysis of the relation of the culture and local communities which are
the special location factors of Asia.

4.

The periods of analysis are mainly in the 90s. After China joined in WTO, the4

actual proof analysis using a measurement model is rare.
5.

Although there is much analysis of the number of cases, there is little analysis of
the amount of money for execution.
In this paper, the fundamental factors of location decision are analyzed bymeasuring the location decision factors of the companies which make inroads into
Chinese market according to province. And also the accumulation effect which thinks
an international production network as important, the relation between special culture
and local communities in Asia, the existence of regional gap in China, and the grade of
the influence of it and others are verified. The period of analyses shall be from 2002 to2005 (after the affiliation to WTO). In this paper, based on the database of the Chinese
business-affairs department, positive analysis will be conducted by the following
models: The OLS model by macro data and the Conditional Logit Model which showsdecision-making of a micro date. Moreover, as an explained variable, in the regression
analysis of OLS model, it presumes by using the amount of foreign direct investmet,
and the number of cases. The Conditional Logit Model presumes by using location
inroads selection. In both models, an explaining variable utilizes the index of GDP,
infrastructures, human capital, labor cost, (labor) productivity, and agglomeration
effects, which are an attribute in each year of each Chinese province. A dummy
variable is also used in consideration of the location gap of an area, and the influence of
culture and local communities. About the source of data, each year version, such as the"China Statistical Yearbook," the "China External Economic Statistical Yearbook," andthe "China Labor Statistics Yearbook," is used.
Thus, it seems that comparing and analyzing Japan, South Korea, and Taiwan byusing both models of the analysis by a total value, and the analysis by selection ofdecision making by comapany level, the determinant of location can be caught
concretely and more certainly. It seems that performing an economic analysis and an
elucidation about the determinant of the location of the companies of Japan, South
Korea, and Taiwan in China has an important meaning in the situation which theeconomy of the East Asia area enhances. And it is expected that it is provided also forthe attraction policy of Chinese foreign direct investment or the reduction of a regionalgap.

5

Section 1
1－1

Positive Analysis by Total Value - OLS Model

Introduction of Variable and Model

Based on the database of the Chinese business-affairs department, about thedirect investment of each year in 2002-2005 (after the affiliation to WTO) to Chineseeach province from the companies of Japan, South Korea, and Taiwan which exist in
East Asia, the determination formula for an investment place shall be the following
models.
OLS Model:

LnFDIit    1 LnGDPit   2 Loadit   3 Eduit   4 LnWageit  B5 LnLabproit  6 LnAggloit  D1  D2  D3  uit(1.1.)

Table 1 List of explained variable and explaining variable
Dependent variable

FDI

it

FDI from Japan (1,Realized amount 2,The number of cases)
FDI from Korea (1,Realized amount 2,The number of cases)
FDI from Taiwan(1,Realized amount 2,The number of cases)
i:Provinces of China( i=1~31) t:Year（2002~2005）(t=1~4)

Independent variable

1 Market size
2 Infrastructure
3 Human capital
4 Labor costs
5 Labor Productivity
6 Agglomeration
7 Dummy of regional gaps
8 Dummy of regional gaps
9 Dummy of connetion

LnGDP
Road
Edu
LnWageLn(Labpro）
Ln(Agglo）
D1
D2
D3
u

Real GDP
Highway density of one unit(Km/Km2)
The ratio of the primary education graduation
Average wage
Labor Productivity（Real GDP/ The working Population ）the cumulative amount of FDI from all of coutries
Dummy of middle province of China
Dummy of west province of China
Dummy of conetion of culture and geography with Japan(Korea, orTaiwan)Error
Term
Source: made by the author

Moreover, as an explained variable, it presumes by using the amount of money forexecution, and the number of cases, respectively. As an attribute of each year of eachprovince in China, the index of GDP, infrastructure, human capital, labor cost,productivity (labor), and the accumulation effect is made, and a dummy variable isadded in consideration of the location gap of an area, and the influence of culture andlocal community. About the source of data, each year version, such as the "China
Statistical Yearbook," the "China External Economic Statistical Yearbook," and the"China Labor Statistics Yearbook," was used.

6

1－2

results and conclusion

The presumed results of location decision analysis of the direct investment to China
from the three countries and areas are synthetically summarized from a point incommon as follows first, and each difference is explained below.
[Insert Tabel 1, Tabel 2 and Table 3]Common features
It was confirmed that the location by the direct investment from Japan, South

Korea, and Taiwan increases as the area where an economic scale is large. About thefactors of economic magnitude, the importance was confirmed in the both models. (Inthe case of Taiwan, this tendency is slightly weak.)Some regional gap exists in the locations of direct investment to China. In an areaof distribution of China, as it shifts from the east to the west, it was confirmed thatnegative influence is so strong to the locations of the companies of Japan, South Korea,
and Taiwan. It was confirmed that fundamental factors of location, such as an
infrastructure, human capital, and labor productivity, becomes a secondary factor
compared with economic scale and the agglomeration effects. About such fundamental
factors of location, the mark of the coefficient of a presumed result may reverse +/ - by
the combination of a variable. And in many cases, a significant level brings an unstable
result compared with economic scale and the accumulation effect.
Difference
It was confirmed that the selection of the location of direct investment to China by

Japan, South Korea, and Taiwan which exist in Asia differs considerably. About theagglomeration effects, although Japan and Taiwan were similar, the characteristic
result came out of South Korea. About the effects of relation of culture and local
communities, although Japan and South Korea were similar, the characteristic resultcame out of Taiwan.

7Section 2

Conditional Logit Model

As a presumed result, about fundamental factors of location, such as labor cost,
infrastructure, human capital, and labor productivity, since the degree of significancewas low in the regression analysis by the total value, it was not verified well. Since thetotal value totaled all the data of each company, it can see a rough tendency. However,since individual information on a company level is lost, it has the fault which cannot
perform detailed analysis. Since it was geographic division data of 31 provinces ofChina, it had only about 120 samples or less in four years after 2002.
In order to support insufficiency of the positive analysis by the above total value,in this chapter, positive analysis by selection of decision-making is conducted from acompany level viewpoint. It is verified again like many prior researches by using theConditional Logit Model. It seems that the Conditional Logit Model, which can display
decision-making by 31 options for every company, can analyze the factors of moredetailed location selection including the selection information of each company.
Therefore, by analysis of decision-making of direct investment to China from acompany level viewpoint, obtaining more detailed presumed results is expected.
2-1

Explanation of Conditional Logit Model
The location selection of the company belonging to a certain industry in t (years) is

considered. There shall be M (number) countries which are the targets of selection.
Namely, if logarithm value of the profit function is expressed as lnП s,t, whenchoosing s (country) as t (year), this company should choose m (country) which fills thefollowing formulas:

ln 

m, t

 Max ln s, t

: S  1,  , M (1.2 )

Here, logarithm value of a profit function shall be expressed as follows:

ln 

s, t

  '  s ,t   s ,t(1.3 )

However, ｘ s,t express the vector of an attribute of the country 3 in t (year). β is acoefficient vector to presume about this industry. ε s,t，express an attribute of thearea that cannot be observed, and the characteristics peculiar to this company whichcannot be observed.
As Mc Fadden (1973) showed, when a residualε s,t，independently follows

8extreme-value distribution of the same type Ⅰ, the probability of this company whichchooses m (country) in t (year) is given in the following formulas:exp(  ' xm ,t )Pm ,t  M
 exp(  ' xs ,t )(1.4 )s 1

Therefore, if expressing the number of times from which s (country) was chosen in theindustry concerned in t as Ｗｓ,t，（ s＝１，‥，Ｍ ，t＝１，‥，Ｔ ) and a residual
becomes independent mutually in all the location selections, the probability that alocation pattern ｛Ｗｓ,t：ｓ＝ １， ‥ ，Ｍ ， t＝ １， ‥ ，Ｔ｝will be observed isacquired in the following formulas:TM

L   Ps ,tWs ,t(1.5 )

t 1 s 1

This type‟s model is called Conditional Logit Model4 β was chosen in order to makethe above-mentioned formulas into the maximum in presumption (maximum
likelihood method).
The prior researches which conducted location analysis of direct investment byusing the above Conditional Logit Model are as follows: Fukao (1996), Fukao・Cheng(1997), Hisatake and Nawata (2003), Urata and Kawai (1999), Wakasugi (2005),
Narisawa, Hirai, Kitami (2003), etc. It is thought that Conditional Logit Model is aneffective method frequently used in this field. The features of the areas of theinvestment place (China), which explain the location selection, is set as x, and in orderto perform introduction about the variable which is used by presumption together with
the OSL model by a total value, it shall be omitted here.
2-2

Results and Conclusion

The presumed results of location decision analysis of the direct investment to China
from the three countries and areas are simply summarized as follows.
[Insert Tabel 4, Tabel 5 and Table 6]
1.

The direct investment to China by Japan, South Korea, and Taiwan is decision
making by comapany level. That is, since it is selection from dispersed options,and there are 31 provinces in China, it is set to 31 as a choice in this case. By the

The details about Conditional Logit Model please see Maddala (1983) and Cramer(1991).
49

Conditional Logit Model which can express decision-making by 31 options forevery company, the factors of more detailed location selection including theselection information for every (number of inroads: Japan: 12,722 cases, South
Korea: 20,668 cases, Taiwan: 17,256 cases) company were able to be analyzed.
Therefore, analysis of decision-making of direct investment to China from theviewpoint of a company level was also able to obtain the more exact presumed
results. Log likelihood and Pseudo R 2 of the whole model which presumed Japan,
South Korea, and Taiwan are good. z value of each variable of each model is high.
And the significant level has resulted in about 1% (both-sides‟ examination).
2.

About the fundamental factors of location, it was well unverifiable with analysis
by a total value. However, an infrastructure, human capital, labor cost, and laborproductivity were certainly checked in Japan, South Korea, and Taiwan by
analysis by Conditional Logit Model. By this, not the analysis with rough analysisof the determinant of the location of direct investment to China by Japan, South
Korea, and Taiwan, but the comparison of Japan, South Korea, and Taiwan about
the determinant of each location was realized. This is considered to be the analysis
by the Conditional Logit Model which shows decision making by comapany levelhas a meaning. Moreover, each feature appeared about these variables in Japan,
South Korea, and Taiwan. About this, difference is described in detail later.

3.

About local dummy, agglomeration effects, and culture and local community
dummy, the presumed results in Japan, South Korea, and Taiwan are almost thesame as the tendency of an OLS model. About the above three factors of location,that the tendency in an OLS model is the same was reconfirmed by analysis by theConditional Logit Model. This is also considered to be the contribution of thedecision-making analysis of the company level by the Conditional Logit Model.

10Section 3

Comparison of Both Models

This chapter simply discusses about the common features and difference of thefactors of location selection of direct investment to China by Japan, South Korea, andTaiwan, comparing the selection of decision-making of the OLS model regression
analysis by a total value and the presumed results by Conditional Logit Model which
expresses decision making by comapany level. And the features of the location of theabove three countries and local companies are summarized in conclusion.
3－1 Comparison of Both Models
The OLS model regression analysis by a total value and the presumed results by
Conditional Logit Model which expresses decision making by comapany level weresummarized as table 5-1. About the common features and difference of factors oflocation selection of direct investment to China by Japan, South Korea, and Taiwan
are simply discussed, comparing a table as follows. In order to be understandable, thesequence shall be the same as "the introduction of factors of location and the proxyvariable." First, let me begin the explanation about the first group as a factor offundamental location.
Table 8Comparison of a total value and the presumed results by selection ofdecision making by comapany level
OLS model
LN_GDP

AmountNumber＊＊＊ ＊＊＊＊＊＊＊＊＊

Logit model
NumberJapan Korea Taiwan Japan Korea Taiwan Japan
Korea Taiwan
(+)
(+)
(+)
(+)
(+)
(+)
(+)
(+)

LN_ROAD
EDU3

(-)

＊

＊

***

***

***

(+)

(＋)

(-)

(＋)

***

＊＊

***

***

(-)

(＋)

(＋)

(-)

***

**

***

＊＊＊

LN_WAGE2
LN_LABPRO
LN_AGGLO1

(+)

(+)

＊＊
DWEST

(+)

(+)

＊＊

＊＊

(+)

(+)

＊＊＊ ＊＊＊(-)(-)＊＊＊ ＊＊＊
DMID

＊＊＊

(+)

(+)

***

(＋)

(+)

(＋)

***

***

***

(+)

(-)

(+)

***

***

***

(-)

(-)

(-)

(-)

(-)

(-)

＊

＊

***

***

***

(-)

＊＊＊＊

(-) （－、＋）

***

＊＊
＊＊＊

D3

(-)

***

(+)

(+)

＊＊＊＊＊＊

(-)

(-)

(-)

***

***

***

(+)

(+)

(-)

***

***

***

Source: made by author

11

1.

Market size
As shown in Table 8, in this paper, like many prior researches, as a result, it
was checked that economic magnitude works positively to the location of direct
investment to China by Japan, South Korea, and Taiwan. It is thought that if (thescale of a country or its area) itself is large, market size is also so large, and there
are many promising investment opportunities.

2.

Labor cost
The direct investment to China of the Asian companies is considered to be thebig cause of deciding the location of inroads, demanding the environment of cheap
Chinese labor wages in order to make profits into the maximum, since it centerson the labor concentration-type-manufacturing-industry. In this paper, as expected,
labor cost has resulted in minus about the location of direct investment to China.
However, the presumed result of Taiwan is slightly weak.

3.

Infrastructure
It is thought that the maintenance situation of public capital is also a factor ofimportant location selection. Although maintenance of the infrastructure has
increased the locations by investment of Japanese and the Taiwanese companies,
it was checked that the advance of South Korean companies is the minus effect.

4.

Human capital
About labor investment, not only labor cost but its quality is important.
Although Japanese and South Korean companies had the tendency to be located tothe area which owns higher human capital, it was checked that Taiwanesecompanies have the opposite tendency.

5.

Labor productivity
When a foreign firm makes inroads into China, it not only thinks about labor
cost as important, but it seems that the efficiency of labor is also taken into
consideration. The index which measures the added value which per worker
produces should be the measure which shows the efficiency of labor. Therefore, insome area, if labor productivity is high, it lures more direct investment. About thispoint, Japan, South Korea, and Taiwan have brought a result as expected.
Next, the presumed results of the second group of an explaining variable are

explained.
6.

Accumulation effectIf the economic activity of a certain area is generally active, the possibility

12that a company can find a customer and the supplier of raw materials in theneighborhood will increase. Therefore, it is thought that it works in favor of
location. In this paper, when the Asian companies, such as Japan, South Korea,
and Taiwan, make inroad into China on the same conditions, which they invested
in other countries, it is verified whether they make the same decision or whether
they expect the same accumulation effect. As a result, in the companies of Japanand Taiwan, both models have this tendency. However, South Korea is thecontrary.
7.

Regional gap
It is a well-known fact that the regional gap of economic development exists
in China. In order to correct a regional gap, the direct investment to the Midwest
is promoted. Also in this paper, the almost same result has been found in bothmodels. And it was checked that the regional difference of the locations of direct
investment to China by Japan, South Korea, and Taiwan exists, and if thegeographical distribution in China shifts from the east to the west, the influence ofminus is so strong on the location of the companies of Japan, South Korea, andTaiwan.

8.

Relation of culture and local communities
About the effect of the relation between culture and local communities, when
the companies of Japan and South Korea decide the location of direct investment
to China, it has checked that they have been influenced by the relation of culture
and local communities. About the Taiwanese companies, it was not checked by the
OLS model contrary to anticipation. However, it was checked by the Conditional
Logit Model that the Taiwanese companies perform location which exceeds culture
and local communities for making inroads into China, unlike the companies ofJapan or South Korea.
As mentioned above, the portion of the factor variable which was not able to bewell verified by an OLS model in the first group has been mostly checked now by 1% ofhigh significance level of a two-side examination by the Conditional Logit Model. In thepart II group, the OLS model regression analysis by a total value and the positive
analysis by the Conditional Logit Model which shows selection of decision making bycompany level have become almost the same results. Thus, the result of "the factors of
the location "to China by Japan, South Korea, and Taiwan" which was analyzed by thetwo measurement methods in Chapter 3 and Chapter 4 can be explained as an

13

accurate one.
3－2

Features of Location choice by Japanese, South Korean, and Taiwanesecompanies in china

The result of "the factors of the location to China by Japan, South Korea, andTaiwan" was shown in Table 5-2 as below. Let‟s look at comparison of the determinantof the location of the companies which makes inroads into China from Japan, South
Korea, and Taiwan, by country.
Table-9Comparison of the determinant of the location of the companies whichmakes inroads into China from Japan, South Korea, and Taiwan

LN_GDP

LN_ROAD EDU3

LN_WAGE2 LN_LABPROLN_AGGLO1DWEST

DMID

D3

Japan

(+)

(+)

(+)

(-)

(+)

(+)

(-)

(-)

(+)

Korea

(+)

(-)

(+)

(-)

(+)

(-)

(-)

(-)

(+)

Taiwan

(+)

(+)

(-)

(-、＋)

(+)

(+)

(-)

(-)

(-)

Notes: The above symbols and bold letters were checked by both models. Others were checked by the Conditional
Logit Model.
Source: Made by author.

Japan
In order to win competition, Japanese companies have decided the location of
making inroad into three provinces and Shandong of the northeast in China byutilizing relation of culture and local communities, while they decide the location of
direct investment to make inroad into China which is similar to the whole and search
for the whole agglomeration effects. And, according to geographical distribution, there
is a tendency that the making inroads into China by Japan decrease if it is shifted fromthe east to the west. The number of cases and the amount of money for execution ofJapanese companies correspond with being mostly located by the eastern area in
China.
Moreover, infrastructure buildings, such as a road construction, have a plus effectin attraction of making inroads into China by Japanese companies. While the area inwhich an academic level is higher and talented people with advanced technique havegathered is not attractive for Japanese small and medium-sized enterprises, the point
is considered as a factor of attractive inroads for the major companies of Japan. The

14

small and medium-sized enterprises from Japan which made inroad into China inorder to seek a cheap labor cost have concentrated on the labor concentration typeindustry which performs simple processing and assembly. For this reason, it is because
the employment of talented people with the high school education and high skill inwhich a high salary is required is recognized as a risk of cost going up rather thanattractive for them. It is thought that in a sense this agrees with the result of minus oflabor cost.
South Korea
In the decision of the location of South Korean companies, the influence fromaccumulation of the location of the whole direct investment to China is weak, and adecision of peculiar location has been made. There is the feature which South Korean
companies concentrate. Here, it agrees with the location of direct investment fromother countries. And it clearly differs from the companies of Japan or Taiwan which
search for the effects of the whole accumulation. However, it was checked that relationof culture and local communities exists like Japanese companies. Especially, theinfluence on South Korean companies is strong. It is because South Korean companies
have the short history of the direct investment to China and they don‟t have experience
as rich as Japanese companies and Taiwanese companies have. But, they have utilized
human resource of the domestic Korean-Chinese people now, and have developed thedomestic business which employs the cultural and geographical advantage of Liaoning
province and Shandong province efficiently. The inroad into China of these South
Korean companies agrees the data in which 70% of the number of cases and 65% of theamount of money for execution are concentrating on Shandong and Liaoning province.
Moreover, there is clearly a tendency that the location of direct investment toChina by South Korea is decided on the following places: the size is large, laborproductivity is high, and labor cost is low. About this point, there is the almost sametendency as Japanese companies.
TaiwanTaiwanese companies agree with the location of direct investment from othercountries. And it has the same tendency as the Japanese companies which search forthe effect of the accumulation in the whole. However, it is expected that they are easily
receive more influences of the location of direct investment by other countries thanJapanese companies. This is also connected with the fact that the Taiwanesecompanies have much outsourcing production from the West. Since the outsourcing

15

production thinks the accumulation effect as important more, many Taiwanesecompanies perform the same location as European and American companies.
Originally, the hypothesis that the direct investment to China by Asian countries has
harnessed the profit of culture and local communities had been set up. However, about
the direct investment by Taiwan, it became clear that they have not decided thelocation of inroads into China by taking advantage of the profit of culture and local
communities like Japan or South Korea. The causes seem as follows: Taiwanesecompanies have the long history of the direct investment to China. They haveaccumulated experiences and management know-how of inroads. They havepredominancy (understanding to the language, culture, and a custom in the Chinesecontinent,) as an overseas Chinese. Therefore, Taiwanese companies were able todecide the location of the inroads into China beyond culture and local communities
unlike Japanese and the South Korean companies. This location to China by Taiwan
differs from Japan and South Korea. Moreover, the number of cases and the amount ofmoney for execution of location of the Taiwanese companies which stated in Chapter 1
correspond also with the fact that they have shifted to a western part than thecompanies of Japan and South Korea. Furthermore, the tendency for the location of
direct investment to China by Taiwanese companies to flow into the place where thelabor cost is low, which is putting a lot of energy into the infrastructure building, wasalso seen.
Thus, common features and differences became clear by sorting of the location of
direct investment to China by the companies of Japan, South Korea, and Taiwan which
exist in East Asia.

Conclusion
Concentration of the locations of direct investment to China has a close relation toa Chinese economic development process. From the first, "The Chinese economic
reform" by Deng Xiaoping is not only the first stage that becomes rich first from thearea which obtained the opportunity to be able to become rich. It includes the second
stage that shifts the development to inland by offering the necessary support of thegovernment and others local area after the Chinese coast area which has a special
economic zone has realized to becoming rich first. Surely, the "Economic reform in the
People's Republic of China" policy from the area along the shore in the eastern part ofChina attracted capital from the foreign countries including the capital of oversea
Chinese people of Southeast Asia. Thereby, the reform of foreign trade system has

16

progressed from the second half of the 1980s, and an export-oriented type direct
investment increased. Although China was deficient in the capital elements in which
the maximum use is possible, it became an exporting country of the industrial productsthat centers on the labor-intensive products by utilizing the predominance of abundantfactors of production by introduction of foreign direct investment. As a result, China
achieved big economic growth. Especially the economic growth in an eastern area has
been astonishing. Thus, the process of the economic growth by the introduction offoreign capital was successful in the eastern area of China.
While Deng Xiaoping‟s "The Chinese economic reform" has achieved the first stage
that becomes rich first from the area which obtained the opportunity to be able tobecome rich, it also expanded the Chinese regional gap. After 2001, it went into thesecond stage which shifts from an eastern area to the Midwest area. Therefore, theChinese government plans a "Midwest area large development" project and a"northeast promotion" project, provides the infrastructure of the areas, and ispreparing the investment environment. Moreover, although the abundant labor forceswere used as a powerful weapon and achievement of the economic growth process by
the introduction of foreign capital was again expected like an eastern area, actually the
direct investment to China by foreign direct investment companies has not beenshifted from an eastern area to the Midwest area as expected.
Furthermore, that the influence of following factors (except ④ for Taiwanesecompany) are strong has been checked by the both a macro analysis of total value and a
micro analysis of decision making by comapany level from the positive analysis of thelocation of direct investment to China by the companies of Japan, South Korea, andTaiwan:1.

Economic magnitude

2.

Accumulation effect3.

Regional gap

4.

Relation of culture and local communities

Since the tendency concentrated according to the above four factors was strong, it wasproved that it is difficult to shift the location of investment to the Midwest area.
So, while the economic growth process by investing foreign direct investment to
the eastern area of China was achieved well on the first stage, why does the economic
growth process by investing the foreign direct investment to the Midwest area of China
not be achieved well on the second stage? The following reasons are considered:1.

Asian production network in the eastern area of China has already been formed.

2.

The direct investment to China is mainly manufacturing industry.

17

3.

Modular production is increasing.

4.

Re-export by processing trade is performed.

・・・
In conclusion, from the results of this positive analysis, the location of direct
investment to China by the companies of Japan, South Korea, and Taiwan have astrong tendency which concentrates further. And the economic growth process which
increases by the introduction of foreign direct investment like an eastern part in the
Midwest of China seems difficult. Rather, probably, concentration of the location of
direct investment to China has a high possibility of accelerating a Chinese regional
gap.

18

Tabel 2
Japan

OLS model – Estimation results－Japan①
LｎNumber②
LｎAmount③
LｎNumber④
LｎAmount⑤
LｎNumber⑥
LｎAmount⑦
LｎNumber⑧
LｎAmount

Coefficient・t value

定数

LｎGDP

Road

Edu

LnWageLn（Labpro）

Ln（Agglo)

3.243

1.747

-3.908-3.015-1.684-3.710-5.237-6.003(0.641)(0.224)(-0.836)(-0.375)(-0.309)(-0.416)(-1.080)(-0.674)

0.297

0.828

0.238

0.783

0.371

0.838

0.363

0.830

(2.001)(3.634)(1.798)(3.473)(2.474)(3.444)(2.747)(3.446)

＊＊
0.081

＊＊＊
0.833

＊＊
1.042

＊＊＊
1.484

＊＊
-0.575

＊＊＊
0.273

＊＊＊
0.701

＊＊＊
1.061

(0.161)(1.056)(2.179)(1.763)(-1.079)(0.310)(1.348)(1.091)-2.1480.522＊＊-2.684＊0.164-0.0881.891-1.0361.343(-1.362)(0.212)(-1.910)(0.067)(-0.054)(0.716)(-0.724)(0.511)-1.054-1.021＊-0.232-0.479-0.381-0.3340.024-0.077(-2.265)(-1.404)(-0.529)(-0.626)(-0.708)(-0.374)(0.051)(-0.086)

＊＊
2.045

1.508

1.455

1.095

1.194

0.838

0.899

0.621

(4.889)(2.257)(3.763)(1.588)(2.474)(1.038)(2.097)(0.769)

＊＊＊
0.543

＊＊
0.596

＊＊＊
0.507

0.579

＊＊
0.441

0.550

＊＊
0.382

0.520

(4.142)(2.857)(4.349)(2.817)(3.367)(2.510)(3.301)(2.391)

＊＊＊

＊＊＊

＊＊＊

＊＊＊

D1

D２

＊＊＊
-0.862＊＊-0.453＊＊＊-0.878＊＊-0.472(-3.321)(-1.066)(-3.840)(-1.121)＊＊＊-1.069-0.796＊＊＊-0.723-0.601(-3.250)(-1.478)(-2.444)(-1.107)

＊＊＊

D３

1.241

0.793

＊＊
1.262

(5.534)(2.027)(5.695)(1.828)

＊＊＊

＊＊

＊＊＊

＊

0.747

simple

117

113

117

113

117

113

117

113

AdjR2

0.815

0.739

0.854

0.747

0.832

0.740

0.869

0.746

F Value

87.12254.45598.98348.62073.31741.18887.57037.800。

Tabel 3
Korea①②
LｎNumber
LｎAmount
Coefficient・t value

定数

LｎGDP

Road

Edu

LnWageLn（Labpro）

Ln（Agglo)

OLS model – Estimation results－Korea③
LｎNumber④
LｎAmount⑥
LｎAmount⑦
LｎNumber⑧
LｎAmount

18.18927.75813.21320.711

7.125

3.773

3.597

-3.223(2.351)(2.515)(1.943)(1.989)(0.842)(0.308)(0.487)(-0.282)

＊＊
0.940

＊＊
1.633

＊
0.935

＊＊
1.587

0.907

1.460

0.805

1.292

(4.207)(5.154)(4.798)(5.380)(3.960)(4.520)(4.028)(4.290)

＊＊＊
0.273

＊＊＊
2.120

＊＊＊
1.125

＊＊＊
2.954

＊＊＊
-0.809

＊＊＊
0.145

＊＊＊
0.387

＊＊＊
1.238

(0.349)(1.959)(1.614)(2.877)(-0.955)(0.126)(0.507)(1.137)-0.524

＊
3.671

0.160

＊＊＊
3.521

1.695

6.166

0.994

4.731

(-0.208)(1.012)(0.072)(1.043)(0.643)(1.712)(0.433)(1.415)-0.740-0.099(-1.012)(-0.082)-2.587-4.100-1.867-3.052-1.236＊-1.079(-3.634)(-3.850)(-2.952)(-2.984)(-1.480)(-0.841)

＊＊＊
2.676

＊＊＊
1.632

＊＊＊
2.151

＊＊＊
1.153

1.503

-0.4811.440-0.636(4.077)(1.756)(3.714)(1.323)(1.965)(-0.461)(2.165)(-0.660)

＊＊＊
0.093

＊
0.226

＊＊＊
-0.083

0.009

＊＊
0.054

0.134

＊＊
-0.0410.015(0.457)(0.740)(-0.461)(0.031)(0.264)(0.448)(-0.228)(0.054)

D1

D２

D３

simpleAdjR2
F Value⑤
LｎNumber

117
0.655
38.008109
0.603
28.615-0.514-0.9340.160-0.274(-1.244)(-1.700)(0.426)(-0.516)-1.429＊-2.622-0.851-2.195(-2.774)(-3.714)(-1.858)(-3.326)

＊＊＊

＊＊＊

＊＊＊
2.670

2.606

2.623

＊
2.658

(5.989)(4.123)(6.021)(4.280)

＊＊＊

＊＊＊

＊＊＊

＊＊＊

117
0.737
47.938109
0.657
30.765117
0.754
40.759109
0.699
29.072117
0.674
31.226109
0.647
25.96519

Tabel 4
Taiwan

OLS model – Estimation results－Taiwan①
LｎNumberCoefficient・t value

定数

LｎGDP

Road

Edu

LnWageLn（Labpro）

Ln（Agglo)②
LｎAmount③
LｎNumber④
LｎAmount

LｎNumber⑥
LｎAmount⑦
LｎNumber⑧
LｎAmount-4.9368.749-4.8918.434-8.803-5.503-8.758-5.829(-1.027)(1.063)(-1.012)(1.022)(-1.637)(-0.614)(-1.620)(-0.649)

0.214

0.148

0.220

0.107

＊
0.242

0.002

0.248

-0.041(1.564)(0.628)(1.557)(0.438)(1.683)(0.009)(1.676)(-0.165)

1.621

1.803

1.640

1.674

＊＊
1.188

0.574

＊
1.208

0.443

(3.364)(2.181)(3.307)(1.975)(2.232)(0.647)(2.215)(0.490)＊＊＊-6.977＊＊-6.706＊＊＊-6.895＊-7.275＊＊＊-5.816-4.821＊＊-5.732-5.403(-4.566)(-2.576)(-4.306)(-2.671)(-3.584)(-1.803)(-3.389)(-1.941)＊＊＊-0.264＊＊-1.984＊＊＊-0.264＊＊＊-1.9880.231-0.285

＊＊＊
0.231

＊
-0.287(-0.597)(-2.597)(-0.594)(-2.596)(0.434)(-0.318)(0.432)(-0.321)

0.623

＊＊
0.501

0.611

＊＊
0.576

0.095

-0.7570.083-0.679(1.551)(0.727)(1.496)(0.825)(0.197)(-0.952)(0.170)(-0.846)

0.746

1.266

0.737

1.330

0.699

1.292

0.690

1.358

(6.024)(5.892)(5.505)(5.716)(5.454)(5.982)(5.006)(5.836)

＊＊＊

＊＊＊

＊＊＊

＊＊＊

＊＊＊
-0.418＊＊＊-0.195＊＊＊-0.418＊＊＊-0.192(-1.616)(-0.456)(-1.609)(-0.448)-0.651-1.499-0.651-1.498(-1.980)(-2.756)(-1.971)＊＊＊＊(2.748)
＊＊＊

D1

D２

D３

simple2
AdjR
F Value

⑤

119
0.808
84.359115
0.698
45.2500.063-0.428＊0.064(0.181)(-0.727)(0.185)(-0.768)

119
0.806
71.693115
0.696
38.693119
0.810
57.208115
0.721
33.983119
0.811
64.920115
0.722
38.304-0.43420

Tabel 5 Logit model– Estimation results

Tabel 6 Logit model– Estimation results

Tabel 7 Logit model– Estimation results－Japan－Korea－Taiwanmodel1ln_gdproaddensity
edu3
ln_wage2
ln_labpro
ln_agglo1
dwest
dmid
djapanLog likelihood
Pseudo R2
対象省数：
投資件数：

model2model3model4model11.196198 0.9282679 0.901731 0.5008824( 48.02 )( 31.08 )( 31.11 )( 15.75 )
***
***
***
***
0.5262875
0.027891 0.1869365
1.26011( 7.56 )( 0.37 )( 2.49 )( 15.60 )
***
**
***
1.076145
4.182953 4.816752 0.2555191( 4.65 )( 13.85 )( 16.07 )( 0.78 )
***
***
***
-5.636968 -5.262947 -4.42037 -1.056529( -46.11 ) ( -42.88 ) ( -32.28 )( -6.01 )
***
***
***
***
4.50657 3.346127 2.380875
1.02788( 47.42 )( 29.00 )( 18.13 )( 7.33 )
***
***
***
***
0.4294775 0.3880673 0.4067561( 15.93 )( 14.55 )( 15.12 )
***
***
***
-0.402273 -0.4885559( -5.06 )( -5.66 )******-1.036782 -0.9501109( -17.55 ) ( -16.08 )******1.11528( 29.07 )***-31518.017
0.2785-31390.611
0.2814-31217.234
0.2854-30762.271
0.2958

31
12722

31
12722

31
12722

31
12722

（ ）内はz値。ｚ値の下での＊、＊＊、＊＊＊はそれぞれ、１０%、５%、１%有意（両側検定）であることを表す。

ln_gdproaddensity
edu3
ln_wage2
ln_labpro
ln_agglo1
dwest
dmid
dkoreaLog likelihood
Pseudo R2
対象省数：
投資件数：

model2model3model1model42.350305 2.386996 2.229548 1.157944( 96.08 )( 90.97 )( 84.43 )( 43.74 )
***
***
***
***
-0.8008996 -0.7539563 -0.7237217
1.45993( -11.65 ) ( -10.78 ) ( -10.24 ) ( 20.74 )
***
***
***
***
11.69615
11.00293 11.02354 -1.787286( 48.96 )( 36.95 )( 37.33 )( -5.66 )
***
***
***
***
-14.71463 -14.78045 -13.29611 -4.090111( -107.17 ) ( -106.53 ) ( -87.22 ) ( -25.13 )
***
***
***
***
8.010262 8.294325
7.06455 3.762853( 82.78 )( 67.89 )( 51.74 )( 30.12 )
***
***
***
***
-0.0816891 -0.1245525 -0.5214857( -3.90 )( -5.82 ) ( -23.47 )
***
***
***
-0.4884666 -0.8882493( -6.56 ) ( -10.92 )******-0.9191146-0.38881( -21.44 )( -7.90 )******2.152753( 67.68 )***-42706.222
0.3983-42698.605
0.3984-42454.375
0.4018-39713.396
0.4404

31
20668

31
20668

31
20668

31
20668

ln_gdproaddensity
edu3
ln_wage2
ln_labpro
ln_agglo1
dwest
dmid
dtaiwanLog likelihood
Pseudo R2
対象省数：
投資件数：

model2model3model40.7493797 0.3920548 0.3578269 0.1070848( 38.30 )( 16.29 )( 14.69 )( 4.03 )
***
***
***
***
2.664762
1.907619 1.786528 1.048716( 41.72 )( 27.23 )( 25.19 )( 14.26 )
***
***
***
***
-10.87719 -7.349399 -6.474032 -6.854744( -49.97 ) ( -28.68 ) ( -24.20 ) ( -26.10 )
***
***
***
***
-1.453134 -0.9739392 -0.1759619 0.613134( -18.52 ) ( -12.13 )( -1.75 )( 5.79 )
***
***
*
***
2.354227
1.08132 0.2966446 -0.0998491( 37.69 )( 13.82 )( 3.02 )( -0.98 )
***
***
***
0.5208703 0.5370366 0.8541132( 24.35 )( 24.79 )( 34.76 )
***
***
***
-0.7569029 -0.8608158( -12.71 ) ( -13.94 )******-0.348989 -0.1938152( -8.74 )( -4.64 )******-0.6211279( -24.94 )***-43892.55
0.2593-43597.909
0.2642-43512.7
0.2657-43201.553
0.2709

31
17256

31
17256

31
17256

31
17256

（ ）内はz値。ｚ値の下での＊、＊＊、＊＊＊はそれぞれ、１０%、５%、１%有意（両側検定）であることを表す。

（ ）内はz値。ｚ値の下での＊、＊＊、＊＊＊はそれぞれ、１０%、５%、１%有意（両側検定）であることを表す。

21

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22

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