Effect of Land Marketization Level and Land Prices on Foreign Direct Investment in China

Round 1

Reviewer 1 Report

The paper is well written, clear in the exposition and in the definition of the objectives. The study is well thought, supported by a rich scientific literature, and supported by results compatible with the objectives. The usefulness of such a study on a global level is important. For this reviewer the paper can be published as is, being sufficiently complete in all its parts. 

Author Response

Thank you very much for your comments after reading this manuscript.

Author Response File: Author Response.docx

Reviewer 2 Report

I suggest the authors highlight the main gaps that justify this research and the main novelties of the study. 

In addition, it is important to justify the relevance of the methodologies followed for objectives designed.

It could be important also more linkage between the methodologies and the results presented, as well as a better benchmark with the literature. 

The conclusions section must show the main insights, policy recommendation, practical implications and suggestions for future research. 

Author Response

(1) I suggest the authors highlight the main gaps that justify this research and the main novelties of the study.

Response: Thanks for your suggestion. At the end of the third paragraph in introduction section, we added the following text to emphasize the contribution and innovation of this study.

This study mainly fills in the literature on the effect of the land marketization level in developing countries on FDI in different level cities through land prices. The main innovations are firstly, reflecting the impact of land marketization level and its resulting land price on FDI in developing countries through empirical analysis, and secondly, revealing the heterogeneity of the role of land marketization level and land prices on FDI.

(2) In addition, it is important to justify the relevance of the methodologies followed for objectives designed.

Response: Thanks for your suggestion. In order to prove the relevance between the research methods and the objectives, we added the following contents in "4.2.2. Gravity center model" and "4.2.3 mediation model".

In section 4.2.2: We use the gravity center model to track the overall evolution of the spatial distribution of FDI in China. This method mainly reveals the location of distribution center of a certain geographical phenomenon and the moving distance and direction in different years [42], which can generally reflect the regional changes of FDI in China.

In section 4.2.3: The mediating model consists of a mediating variable, an independent variable and a dependent variable. The relationship among the three variables is as follows. If the in-dependent variable X has a certain influence on dependent variable Y through variable M, then M is called the mediating variable of X and Y [43].

(3) It could be important also more linkage between the methodologies and the results presented, as well as a better benchmark with the literature.

Response: Thanks for your suggestion. We added the following text in the conclusion and discussion to enhance the dialogue with the existing literature and clarify the academic contribution of this manuscript.

Traditional location theory suggests that the land cost is an important factor influencing the location of a firm [61]. Multinational corporations chose to invest in China mainly because of the cheap land and labor and the large market size [62]. Since entering the 21st century, China's production costs have been rising faster, which has a certain negative impact on FDI. For example, the high land cost is a negative factor for attracting FDI in the Pearl River Delta and Yangtze River Delta cities [63]. Overall, however, the increases in land prices caused by China’s special land market system do not significantly inhibit FDI but rather significantly promote FDI, especially in high administrative-level, eastern and central cities.

(4) The conclusions section must show the main insights, policy recommendation, practical implications and suggestions for future research.

Response: Thanks for your suggestion. We have reorganized the conclusion and discussion section, and the second paragraph describes the main insights. At the end of the third paragraph, practical implications and suggestions for future research are added, and the fourth is mainly policy suggestions.

Main insights: With the continuous improvement of China’s market economic system, the level of land marketization in China has also increased, with significant regional heterogeneity. Although the land marketization level in high-level cities is not higher than those in low-level cities, they are increasing at a more rapid pace. With the increase in land marketization, land prices have also increased significantly, especially in high-level cities. Although the relative attractiveness of high-level cities to foreign investors has declined over time, high-level cities are still major destinations for FDI. The improvement of land marketization level and the rise of land prices have promoted the inflow of FDI into China. The positive effect of land marketization level on FDI in high-level cities is weak, and land marketization even negatively affects FDI in some cases. By contrast, land marketization level generally exerts a stronger positive effect on FDI through land prices in high-level cities than it does in low-level cities.

Practical implications and suggestions for future research: These findings partially reflect the effects of land property rights protection and land prices on FDI in developing countries within the context of economic system reform, thereby enriching the literature on the theoretical bases of the location decisions of MNCs and elucidating the mechanisms underlying the heterogeneity in the spatial distribution of FDI within China, which can provide reference for the macro-level location choice of FDI in China and for the central government to coordinate regional development and adjust FDI utilization policies. However, there are still shortcomings in this study. Namely, the sectors of FDI have not been subdivided and the impact of land marketization and land prices on FDI in traditional manufacturing industries, sophisticated manufacturing industries, traditional service industries and modern service industries has not been explored.

Policy recommendation: The differences in land marketization level and land prices between high- and low-levels cities in China strongly affect the regional distribution of FDI. Although the amount of FDI in low-level cities has increased more rapidly than that in high-level study, high-level cities are still the primary destinations of FDI, which strongly affects the balance in China’s economic development. China’s current economic development efforts are focused primarily on high-quality development and are expected to remain so for the foreseeable future. Coordinated development are essential for ensuring high-quality economic development. Therefore, central government must continue prioritizing efficiency and equity, strengthen land market reform, gradually improve the FDI management system, and promote the coordinated opening up of the central, western and coastal regions. High-level cities should explore land management innovation, strengthen the development of inefficient construction land, and provide land security for FDI in sophisticated manufacturing, strategic emerging industries, digital economy and other fields. Low-level cities should seize the opportunity of industrial transfer, give play to the comparative advantages of land and labor costs, deepen the reform of market system and investment environment, and create a fair competition environment for foreign-funded enterprises.

Author Response File: Author Response.docx

Reviewer 3 Report

Section two should read literature and not hypothesis. Hypothesis should be separated from the literature section. Likewise section 3 should read methodology and the city-level classification, and data sources should be sub-headings under the section. The equations under Table 1 should be appropriately described as equation and labelled accordingly. Line 407 pg 14, As discussed in previous sections.....this is not discussed in section 1, 2 or 3 so can the author rephrase this statement.

Author Response

Section two should read literature and not hypothesis. Hypothesis should be separated from the literature section. Likewise section 3 should read methodology and the city-level classification, and data sources should be sub-headings under the section. The equations under Table 1 should be appropriately described as equation and labelled accordingly. Line 407 pg 14, As discussed in previous sections.....this is not discussed in section 1, 2 or 3 so can the author rephrase this statement.

Response: Thanks for your suggestion.

(1) We change the title of Section 2 to literature review, and the research hypothesis is taken as Section 3 alone.

(2) We have changed the title of original Section 3 to “City level classification and methodology”.The contents of original Section 3 are presented successively as “city level classification”, “methodology” and “data sources”. The city level classification is placed in the first part of this section, which is mainly about the unit root test of variables in the grouped regression of high and low administrative-levels, coastal and inland, eastern, central and western cities in the later methodology.

(3) We added Appendix A in manuscript to describe the equation under Table 1.

(4) We have rephrased this statement on line 407 and page 14 to read “As discussed in 4.1 and 4.2 sections, land marketization level and land prices differ significantly between low-and high-level cities in China”.

Author Response File: Author Response.docx