Location Choice of Industrial Enterprises in China: Market Potential, Resource Endowment and Tax Burden*

Ye Suyun (叶素云)1 and Ye Zhenyu (叶振宇)
1School of Economics, Renmin University of China, Beijing
2Institute of Industrial Economics, the Chinese Academy of Social Sciences, Beijing

 
Abstract: Using a New Economic Geography (NEG) model, this paper investigates the effect of market potential, natural resource endowment and tax burden on the location distribution of industrial enterprises in China. By applying data from 2000 to 2010 of 286 Chinese cities, this paper conducts an empirical analysis on the location of industrial enterprises of different time periods, regions and ownership systems. The results indicate that greater domestic market potential and international market demand are favorable to fostering or introduction of new enterprises. It also shows that coastal cities with better resource endowment are more attractive to corporate investment, while cities in interior regions have heavy and highly differentiated industrial tax burdens, which is unfavorable to the attraction of enterprises. In comparison, infrastructure and wage of cities have no obvious effect on enterprises’ location choice. When it comes to enterprises of different ownership, domestic market potential and international market demand all have significant positive effects on the location distribution of foreign-funded enterprises, private enterprises and enterprises with investment from Hong Kong, Macau and Taiwan, while the level of urban industrial tax burden has an opposite effect. We find that the NEG model has a relatively strong explanatory power to the location of industrial enterprises in China.
Keywords: Location choice, natural resource endowments, market potential, tax burden

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