Institutions, Leaders’ Career Concerns and FDI Inflows in China
2019-05-20 09:15:36
by Danqing Wang, The University of Hong Kong

Thursday, March 28, 2019 | 2:00pm-3:30pm | Room 331, HSBC Business School Building


Political institutions characterized by high political risks deter foreign direct investment (FDI). We argue that career concerns of government leaders—i.e., how the government designs a career ladder to motivate appointed leaders—also creates constraints on their discretion. The career concerns institutionally link FDI attraction to career advancement, becoming a main driver attracting rather than deterring FDI. We test this by examining Chinese city leaders and FDI inflows from 2003 to 2010. Using a difference-in-difference approach, we find that after the Communist Party’s Congress, newly appointed leaders, with better promotion prospects and stronger incentives, attract more FDI inflows than continuing leaders. This effect is also influenced by formal and informal institutional arrangements: mandatory retirement, ranking in the tournament competition for GDP growth and informal politics.