Do trade openness, digital technology, and governance quality attract FDI? A provincial panel analysis from China

Abidin R. Z. u., Qammar R., Tiwari S., Sharif A.

Development and Sustainability in Economics and Finance, vol.10, 2026 (Scopus)

Abstract

This study examines the determinants of foreign direct investment (FDI) inflows across 31 Chinese provinces from 2010 to 2023 (N = 434), employing a panel dataset drawn from the National Bureau of Statistics, the Ministry of Commerce, and the Fan Gang Marketization Index. We investigate the roles of trade openness, ICT infrastructure, R&D expenditure, human capital, and governance quality in shaping FDI intensity, measured as FDI inflows as a percentage of provincial GDP. Using pooled OLS, province fixed-effects, and first-difference estimators alongside mediation analysis and regional heterogeneity decomposition, we find that trade openness and ICT penetration are the most robust and significant drivers of FDI (β = 0.728 and 2.161 respectively, p < 0.001), while governance quality, proxied by the Fan Gang Marketization Index, and education, measured as university enrolment per capita, exert significant mediated effects. Regional heterogeneity is pronounced: the ICT–FDI nexus is strongest in Eastern provinces (β = 6.908, p < 0.001), whereas Western and Central provinces exhibit a more governance-sensitive investment climate. The Breusch–Pagan test confirms heteroskedasticity, and robust standard errors are applied throughout. These findings extend Dunning's OLI framework by empirically operationalising dynamic location advantages in a digital economy and provide actionable policy guidance for sustaining FDI resilience in China's post-pandemic, geopolitically contested investment environment.