Foreign direct investment and regional integration: The connectivity role of same-origin greenfield investment in the Yangtze River Delta

Abstract

Much literature explores the impact of foreign direct investment (FDI) on the development of city regions by establishing global-local connections and expanding local economies, but few studies examine how interconnections among same-origin FDI enhance regional integration in host countries. Focusing on the Yangtze River Delta (YRD) mega-city region, which consists of 41 cities, we examine whether and how greenfield investment from the same country of origin and located in different cities of YRD facilitates intercity connectivity. To address endogeneity issues, we construct instrumental variables for the intercity connections of FDI by employing the Shift-Share instrumental variable method. The estimation results suggest a persistent and robust effect throughout the 2005–2020 period. Moreover, foreign-invested enterprises (FIEs) operating in different subsectors, high-value manufacturing, and producer-service sectors, are the primary drivers of these spatial effects. This research highlights the established connections among FIEs from the same origin country in understanding the dynamics of mega-city regions. It also indicates that when attracting foreign investment, local governments should identify the heterogenous impact of interconnections among same-origin FIEs, rather than focusing exclusively on an individual FIE to boost regional integration.