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Analysis of the Effects of Digital Cities on Foreign Direct Investment Inflows

Author(s)

Zhenjun Cai

Affiliation(s)

School of Business, Hunan International Economics University, Changsha, China

Abstract

Continuous promotion of smart city pilot projects is an essential strategy for China to stabilize its foreign direct investment (FDI) environment and form a new development paradigm integrating domestic and international economic circulations. Employing panel data from 226 prefecture-level Chinese cities in the time period of 2004 to 2019, this study applied a multi-period difference-in-differences (DID) method to empirically explore the effects of smart city initiatives on FDI inflows and their underlying mechanisms. Research findings confirmed that smart city projects had significant positive effects on FDI inflows, a result which remains consistent even after solving potential endogeneity concerns and conducting robustness tests. Further analysis revealed that improved business environment, enhanced innovation capacity, and greater economic agglomeration positively moderated the relationships among smart city initiatives and FDI inflows. Heterogeneity analyses indicated that the positive impacts of smart city projects on FDI were more pronounced in larger cities, cities in eastern and central regions, and urban centers. These conclusions provided important insights for the continued advancement of China’s urban digitalization efforts and dual enhancement of scale and quality of FDI inflows into cities.

Keywords

Smart Cities; Foreign Capital Inflows; Multi-Period DID; Difference-in-Differences

References

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