As industrial economies have prospered, their business firms have also grown and matured resulting in increased foreign direct investment (FDI) and thus foreign direct investment has become a major issue for analytical discussion in an international perspective. Foreign direct investment is a major source of international resource transfer. The tremendous competition generated among host countries, regions, and localities for FDI has created an abundance of literature, some favorable some not so favorable. Those favorable writings are generally in defense of free markets and include Becker (1989) and Reich (1990). Unfavorable discussions usually express concerns over domestic economic and national sovereignty, and security issues. Recent criticisms of FDI feature the works of: Tolchin and Tolchin (1988), Burstein (1988), Prestowitz (1988), Glickman and Woodward (1989), Spencer (1988) and Frantz and Collins (1989). Other discussions by Morgan Guaranty (1989), Reich (1991), Peterson (1989) and Fry (1980) provide excellent, balanced arguments. Discussions of FDI in literature have focused mainly on the national economy as a whole, while FDI considerations on a regional basis, or more specifically on an urban basis, have been somewhat ignored. And while there is an established research base concerning the factors which attract industries to an urban regions, research on the role of government in encouraging foreign direct investment- based economic development is absent of any serious analytical discussion. The main objective of this paper is to fill the gap created by this absence.
The rational role of government in the process of attracting foreign direct investment in China
