The impact of digitalization on foreign direct investment inflows into cities in China

Abstract

This paper explores the impact of digitalization on Foreign Direct Investment (FDI) inflows in 270 Chinese cities from 2012 to 2019, focusing on regional disparities in income levels. Employing the System Generalized Moment Method (GMM), it aims to bridge the gap in understanding how digitalization influences FDI inflows across regions with different income levels. The findings indicate a positive correlation in low-income cities where digitalization significantly attracts FDI, but this effect is limited in medium and high-income cities. These results highlight that incentives and digital infrastructure development could be crucial for enhancing FDI in lower-income regions, making digitalization a potential strategic tool for economic growth.