The Location of Japanese Investments in China: Agglomeration Effects, Keiretsu, and Firm Heterogeneity

Conditional logit analysis of the locational choice by Japanese electronics firms in China''s regions and provinces during 1990-1995 confirms a major impact of general industry, Japanese, and keiretsu-specific agglomeration benefits. Further analysis reveals a substantial aggregation bias due to the presence of firm heterogeneities in terms of investor size and market orientation of manufacturing investments. Small and medium sized enterprises are more sensitive to distance from Japan and Japanese agglomeration, but less sensitive to the presence of incentive zones. Export oriented plants are more responsive than local market oriented plants to keiretsu agglomeration and seaports but less responsive to regional demand.