Firms’ Location Choices in Guangdong

This paper empirically examines the factors that drive firms to locate in Guangdong province, China. By dividing Guangdong province into 21 cities, I detect characteristics in each city and find how such characteristics affect firms’ location choices. During the period of economic reform in China in the past decades, industrial agglomeration, government preferential policy, resource endowment costs, and FDI inflow all played a substantial role on the local economic development. By using an individual level micro cross sectional dataset and an empirical econometric conditional logit model, I reveal the determinants of firms’ location choices as well as provide hints for local economic development. Regression results found that export-related factors and FDI-related factors are attracting firms to locate in Guangdong; yet agglomeration effects are insignificant on firms’ location choices. R&D related factors are negative, which implies an unfinished industrial upgrading. Good infrastructure attracts firms. Overall results imply that without changing the local attracting point into higher level points like R&D and innovation China may be facing a difficult situation to cope with the coming economic slowdown.