Acta Geographica Sinica ›› 2006, Vol. 61 ›› Issue (12): 1259-1270.doi: 10.11821/xb200612003

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Industrial Agglomeration and Sectoral Distribution of Foreign Direct Investment: A Case Study of Beijing

HE Canfei, LIU Yang   

  1. Department of Urban and Regional Planning, Peking University, Beijing 100871, China
  • Received:2006-06-08 Revised:2006-10-30 Online:2006-12-25 Published:2006-12-25
  • Supported by:

    National Natural Science Foundation of China, No.40535027; No.40401015


The purpose of this paper is to investigate the systematic forces that determine the sectoral distribution of foreign investment. Unlike the existing literature, this study highlights the importance of industrial agglomeration and industrial linkage in attracting foreign investment. Using a panel dataset of two-digit manufacturing industries in Beijing during the period 1999-2004, this study finds that geographically agglomerated industries with strong intra-industrial linkages attract much foreign investment. Previous foreign investments have demonstration effects, information spillover effects and linkage effects, leading to industrial concentration of foreign investment. Investors also highly favor capital and technology intensive industries and are drawn to the most profitable and exporting industries, but avoid industries with high effective wage rates and high entry barriers. This study provides strong evidence to support that competitive and comparative advantages of local industries are critical to allure foreign investment. The existence of industrial clusters certainly heightens a city's attractiveness to foreign investment.

Key words: industrial agglomeration, industrial linkage, foreign direct investment, Beijing