FDI and Industrial Restructuring in Post-WTO Greater PRD: Implications on Regional Growth in China

This paper aims at studying the investment flows in the Greater Pearl River Delta region (Hong Kong-PRD) in China and its impacts on industrial restructuring at the firm-level using a business survey with the Hong Kong-PRD entity acted as a core-periphery economy. The critical effects of gravity distance on transaction costs in the determination of investment flows are examined statistically by a gravity model by incorporating a hypothetical infrastructural construction project. Survey findings show that the evolution of the cross-border operations at the main core has directed the outward FDI flows and the subsequent industrial structural adjustments of the core-periphery economy. This paper has presented a typical illustrative case for further studies of investment flows and its impacts upon industrial adjustments and performance in other regions in China especially after the WTO accession. Its implication on regional economic growth is also discussed. Copyright 2004 Blackwell Publishing Ltd.