Water resource, agglomeration and location choices of Japanese textile manufacturers in China

Abstract

This study attempted to identify the determinants of location choices for Japanese textile manufacturers in China, with special attention on the effects of water resources and agglomeration. Surveys of six manufacturers were conducted, resulting in the development of hypotheses for investment incentives based on an analysis of business activities. Using a theoretical model, a negative binomial model was introduced for estimation with a set of annual panel data. In the estimation, 272 newly established plants from 1992 to 2007 were taken as dependent variables, and eight independent variables were tested as determinants of location choices. The significance of industrial water abundance was tested in upstream and downstream processing sectors separately. In all estimations including those for the entire textile industry, upstream and downstream sectors, coefficients of market size, policy zones and seaports were positive and statistically significant, whereas wage rate was negative and highly significant. As expected, the water supply coefficient was particularly positive and highly significant for upstream textile plants, but not significant for downstream textile plants. Keiretsu and agglomeration variables had significant effects on the entire textile industry. Especially, the downstream textile industry location choice was affected more than the upstream textile industry location choice.