Bing Zhou¹, Zhong-guo Zhou², Zheng-liang Ren³, Hui Xu¹

(1. Accounting College, Chongqing Technology and Business University, China;

2. David Nazarian College of Business and Economics, California State University Northridge, USA;

3. College ofEconomics and Statistics, Guangzhou University, China)

 

 

Abstract: We examine the relationship between foreign direct investment (FDI) and industrial cluster in China with an emphasis on the impact from regional financial environment. Using a panel data from 2000 to 2010, along with inter-provincial financial development, we build a threshold model to examine the FDI effect and find a big difference in using FDI to promote industrial cluster in different provinces and regions. There exists a threshold effect from regional financial development, which restricts industrial cluster in those regions with a less-developed financial system. Our results reveal that the degree of financial development is a key factor to bridge FDI and industrial cluster in China. We highlight the policy implications.

 

 

Key words: foreign direct investment; industrial cluster; threshold effect; financial environment

 

JEL codes: F21, F43, L16, O16, O53