市政外交與外商直接投資的區位選擇：以台灣直轄市為例 - 政大學術集成

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(1)國立政治大學亞太研究英語博士學位學程 International Doctoral Program in Asia Pacific Studies College of Social Sciences National Chengchi University 博士論文政治大 Doctoral Dissertation 立. ‧. ‧ 國. 學. n. al. er. io. sit. y. Nat. 城市外交與外商直接投資的區位選擇：以台灣直轄市為例 Municipal Diplomacy and Foreign Direct Investment Location Choice: The Case of Taiwan’s Major Cities. Ch. engchi. i n U. v. Student: Mark Gregory Henderson Advisor: Tsai Chung-Min. 中華民國 108 年 3 月 March 2019. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(2) 城市外交與外商直接投資的區位選擇:以台灣直轄市為例. Municipal Diplomacy and Foreign Direct Investment Location Choice: The Case of Taiwan’s Municipalities 研究生：韓馬克. Student: Mark Gregory Henderson. 指導教授：蔡中民. Advisor: Tsai Chung-Min. 亞太研究英語博士學位學程. 學. 博士論文. ‧ y. Nat. io. er. A Dissertation Submitted to. sit. ‧ 國. 立. 政治大國立政治大學. al. n. iv n C International Doctoral U Pacific Studies h Program e n g c hini Asia National Chengchi University. 中華民國 108 年 3 月 March 2019. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(3) i. Abstract The intended aim of this study was to determine the relevance of relationship building through diplomatic policy at the local government level when attracting foreign direct investment to the four largest cities in Taiwan (Taipei, New Taipei City, Taichung, and Kaohsiung). Taiwan was the focus of our study due to a number of factors, including; geographic location (the home of two thirds of the worlds middle class by 2030), relative transparency of government operation, resistance to. 政治大 due to a new trend of 立 FDI flow into the Asia-Pacific region. In order to. deindustrialization (and therefore suitability to various forms of FDI), and. ‧ 國. 學. address the central question of our study we selected two leading frameworks, Dunning’s OLI model and Wells and Wint’s IPA theory, to. ‧. guide our examination of FDI frequency among Taiwanese cities. We combine the two existing methods and introduce a new “relationship. Nat. sit. y. building” or “diplomacy” conception to Dunning’s existing framework.. er. io. Employing a conditional logit model, we provide evidence that, in addition. n. to agglomeration, infrastructure, and market size from a v Dunning’s model, all of our newly. i l C n formulated “relationship” h e n g cvariables h i U came. up as statistically. relevant. Next, we further determine the relevance of our new relationship variable by garnering the opinions of FOE managers currently operating in the cities associated with our study. In order to design an appropriate questionnaire, we conduct a set of comprehensive interviews with local diplomatic departments in Taiwan. By combining the outcomes from the quantitative analysis with the survey responses from FOE managers, this study introduces a new diplomatic variable, through city-country relationships, to the FDI research agenda.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(4) ii. ACKNOWLEDGEMENTS Professor Tsai Chung-Min Professor David Holm Professor Leng Tse-Kang Dr. Wu Chin-En Professor (Chelsea) Chou Chia-Chen Howard Huang. 立. Sophie Chou 政治大 Shahrzad (Sherry) Dowlatshahi. ‧. ‧ 國. 學. (Jean) Yen Chun-Jui. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(5) . iii. TABLE OF CONTENTS Abstract. i. Acknowledgements. ii. Table of Contents. iii. List of Tables. vi. List of Figures. vii. Abbreviations. viii. CHAPTER 1: Introduction. 立. 政治大. 1. 1.2 Case Subject: Taiwan’s Major Cities. 3. ‧. ‧ 國. 3. 學. 1.1 Question: Does local diplomacy influence FDI location choice?. 1.3 The Scale of Local “Relationship Building”. y er. io. al. n. CHAPTER 2: Reformatting Existing FDI Theory to Account for Relationships 2.1 Modern FDI Theory. Ch. engchi U. v ni. 2.2 Framework: Dunning’s OLI Eclectic Theory. 10 10 12. 2.2.1 Variables: Reformatting the OLI and IPA Theories. 14. 2.2.2 Quantitative Testing: Location Choice Trends in Taiwan. 15. 2.2.3 Qualitative Testing: Surveying Taiwan’s MNE Managers. 19. 2.3 Data: FDI Projects, Municipal Policy, and MNE Managers. 7. sit. Nat. 1.4 The Evolution of FDI as a Research Agenda. 5. 20. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(6) . iv. CHAPTER 3: Macro Trends, FDI Location Choice & Sister City Relationships. 23. 3.1 Dunning’s OLI (Location Specific) Variables. 24. 3.2 Wells & Wint (Investment Promotion) Variable. 27. 3.3 Relationship (New) Variables. 30. 3.3.1 Spending on Diplomacy (DIPSp). 30. 3.3.2 City-to-City Diplomacy (SISCi). 32. 3.3.3 City to Country Diplomacy (SISCo). 33. 政治大. 3.4 Conclusions. 立. 34. CHAPTER 4: Comparing Municipal Diplomatic Policy & FOE Attitudes. ‧ 國. 學. 4.1 Interviews: Municipal Diplomatic Policy in Taiwan. ‧. 4.1.1 Organization 4.1.2 Function. y. Nat. 4.1.4 National Government Interaction. n. al. Ch. 4.1.5 Political Issues. engchi. er. io. sit. 4.1.3 Accountability. i n U. v. 37 38 42 52 54 56. 4.1.6 Mainland China Issues. 60. 4.1.7 Economic Value. 63. 4.2 Survey: FOEs in Taiwan, Recognition of Diplomatic Efforts. 66. 4.2.1 Designing a Survey for FOEs in Taiwan. 66. 4.2.2 Survey Results. 69. 4.3 Conclusions 4.3.1 City Government Efficiency. 36. 75 76. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(7) . v 4.3.2 Guidance from Home Country. 77. 4.3.3 City to Country Relationship. 79. 4.3.4 Guidance from Taiwan’s National Government. 80. 4.3.5 City Website Quality. 81. 4.3.6 City Diplomatic Efforts. 83. 4.3.7 Interaction with City Executives. 84. 4.3.8 Interaction with City Officials Abroad. 85. CHAPTER 5: Conclusion. 立. 政治大. 88. 5.1 OLI Theory & “Relationship Seeking” Behavior. 91. ‧ 國. 學. 5.2 Implications. ‧. 5.2.1 Theoretical Implications. 5.2.2 Implications for Municipal Diplomacy Generally. y. Nat. n. al. er. io. 5.3 Limitations. sit. 5.2.3 Implications for Taiwan. Ch. 5.4 Suggestions for Future Research. engchi. i n U. v. 95 96 96 99 101 103. REFERENCES. 105. APPENDICES. 110. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(8) . vi. LIST OF TABLES Table 1 Local Government International Relations, Taiwanese Cities. 6. Table 2: Location Specific Variables. 18. Table 3 Statistical Findings where the Dependent Variable is “Choice to Invest”. 27. Table 4 Total Investment Projects from 2003-2018. 29. Table 5 Sister & Friendship City Relationships, Organized by Region. 50. Table 6 General and Specific Characteristics of Diplomacy in Taiwanese Cities. 67. 政治大 Table 7.2 Survey of FOEs in立 Taiwan-Observation Distribution (Refined). Table 7.1 Survey of FOEs in Taiwan-Observation Distribution (Unaltered). 71 72 73. Table 8.1 Diplomatic Policy Factor Variables, Ranking of Importance (Refined). 74. ‧. ‧ 國. 學. Table 8.1 Diplomatic Policy Factor Variables, Ranking of Importance (Unaltered). n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(9) . vii. LIST OF FIGURES Figure 1 OLI and IPA Frameworks Accounting for “Relationship” Variables. 14. Figure 2 FDI Projects in Taiwan by City from 2003-2018. 23. Figure 3 Dispersion of Investment Projects by Industry and Country, 2003-2018. 31. Figure 4.1 Diplomatic Policy Factor Variables, Ranking (Unaltered). 73. Figure 4.2 Diplomatic Policy Factor Variables, Ranking (Refined). 74. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(10) . viii. ABBREVIATIONS. CETRA. China External Trade Development Council. DPP. Democratic Progressive (Political) Party, Taiwan. EDC. Economic Development Corporation. FDI. Foreign Direct Investment. FOE. Foreign Owned Enterprise. IIA. Independence of Irrelevant Alternatives, Theory. y. Memorandum of Understanding. io. al. Non-Government Organization. n. NGO. Ministry of Foreign Affairs, Taiwan. sit. MOU. Ministry of Economic Affairs, Taiwan. Nat. MOFA. ‧. MOEA. Multinational Enterprise. er. MNE. Kuomintang (Political) Party, Taiwan. 學. KMT. ‧ 國. IPA. 政治大 Investment 立 Promotion Agency. v. NTD. i n C New Taiwan Dollars hengchi U. OLI. Ownership, Location, and Internalization, Theory. R&D. Research and Development. RIA. Regional Integration Agreement. TWMNC. Third World Multinational Corporation. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(11) . 1 Chapter 1: Introduction. Governing the conditions most suitable to promote economic vitality has gradually shifted away from the center. As a result, local policy makers, at the city, county and provincial level, are competing through local promotion, infrastructure strengthening programs and incentive packages for domestic and international business investment. These packages are meant to attract an expanding number of multinational. 治政大 follows a strategic plan. further integrate product and labor markets. Each entity 立. enterprises (MNEs), which are utilizing the practice of foreign direct investment (FDI) to. Businesses seek profit, while policy makers are concerned with creating jobs and. ‧ 國. 學. efficiently utilizing or expanding a limited budget. Finally, researchers seek to develop. ‧. theoretical frameworks that best explain the respective actions of each group. In U.S. cities the prerogative to attract potential investments from abroad has been. y. Nat. io. sit. handed off to investment promotion agencies (IPAs) that are often funded through a. n. al. er. combination of public and private funds. These IPAs, sometimes called economic. Ch. i n U. v. development corporations (EDCs), are typically run by ex-government bureaucrats or. engchi. business people, who have the specialization and know-how associated with creating meaningful investment partnerships. These organizations work together with the economic development departments of municipal and county governments to create a cohesive strategy aimed at investment attraction and trade promotion. Recently, the Brookings Institution has indicated that diplomatic and other non-economic focused exchanges are relevant when considering a locality’s overall competitiveness when seeking to attract FDI. However, after examining some of the larger cities that. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(12) . 2. participated in the study by Brookings, we found that there is little to no allocation of funds for non-conventional programs aimed at building international relationships. For example, San Diego, Philadelphia, Los Angeles, Chicago and San Antonio, all of which were included in the Brookings “Global Cities Initiative”, do not have a department nor an NGO partner (with directly allocated city funds) that is charged specifically with carrying out non-economic international (diplomatic) exchange. The only exception to this trend was San Antonio, which recently dissolved their international relations. 治政 maintain economic development departments alongside大 a public-private funded IPA of 立. department in 2011 due to budgetary constraints. All of these cities did, however,. some sort.1. ‧ 國. 學. The aim of this research is to further sophisticate the theoretical knowledge thus. ‧. far, by incorporating an additional tool that could potentially be utilized by local policy makers, known as “relationship building”. This original term refers to the sum total of. y. Nat. io. sit. various exchanges and interaction between local governments or communities and their. n. al. er. foreign counterparts resulting in little or no immediate economic impact. Such exchanges. Ch. i n U. v. range from sister city relationship creation to support for international student exchange.. engchi. Our purpose is to measure the efficacy of government spending to support such exchanges. By including this variable, we are better equipped to comprehend investor behavior and inform policy. The time is now to utilize these findings in order to add new and dynamic variables to the existing theoretical framework.. Institution. Metro, Global Cities Initiative. http://www.brookings.edu/about/projects/global-cities/exchange. (Accessed, April 2015).. 1 Brookings. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(13) . 3. 1.1 Question: The core question of this project is as follows; Does relationship building (diplomatic efforts) at the local level of government have any effect on the inflow of foreign direct investment? We argue that an increased prioritization of international diplomatic exchange and relationship building will have a positive influence on FDI inflows to that locality.. 治政大 its geographic location, Taiwan was chosen for a number of reasons, including; 立. 1.2 Case Subject: Taiwan. relative transparency of government operation, resistance to deindustrialization (an. ‧ 國. 學. therefore suitability to various forms of FDI), and due to a new trend of FDI flow into the. ‧. Asia-Pacific region.. “Economic growth is shifting from the developed Western world to the Asia-. y. Nat. n. al. Ch. er. io. class will live in the Asia-Pacific region.”2. sit. Pacific region and other emerging markets. By 2030, two-thirds of the global middle. i n U. v. Additionally, the Taiwanese strategy for foreign direct investment attraction is. engchi. primarily created by government entities, therefore, the relative infrequency of an IPAGovernment interplay simplifies the causal link between policy action and investment creation. In addition to local government offices for economic development, investment promotion comes from National Government bodies in Taiwan, for example; the Industrial Development & Investment Center (MOEA), the Industrial Development Bureau (MOEA), the Investment Commission (MOEA), the International Cooperation Kharas and Geoffrey Gertz, “The New Global Middle Class,” (Washington: Brookings Institution, 2010).. 2 Homi. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(14) . 4. Department of the (MOEA), and the Small & Medium Business Administration (MOEA). The only non-government actor associated with national-level economic development in Taiwan is the China External Trade Development Council (CETRA), which is focused primarily on trade promotion for Taiwanese companies, rather than inward investment attraction, and therefore less relevant for our purposes. Finally, unlike the major cities mentioned above in the Brookings Institution study, Taiwanese local governments all maintain separate international relations departments in. 治政 Additionally, these大 local. addition to economic development bureaus, making Taiwan ideal for testing a new “relationship building” variable.. 立. bureaus charged with. conducting diplomacy hold a somewhat privileged position vis-a-vis their national. ‧ 國. 學. governments when compared to their counterparts abroad, given Taiwan’s unique. ‧. diplomatic status. In other words, the absence of a capacity for “official” international diplomatic ties places increased responsibility in the hands of Taiwan’s city level. y. Nat. io. sit. diplomats. An in depth look at the benefits afforded to each of these cities by choosing to. n. al. er. maintain diplomatic bureaus will allow us to assess the potential economic returns of that. Ch. decision. In essence: Is municipal diplomacy worth it?. engchi. i n U. v. By utilizing Taiwan as a case study, we are afforded a unique opportunity to juxtapose our findings with a consideration of a representative case, designated as most relevant in the coming decades.3 For the purpose of applicability, this study will focus on four major municipalities “四都” (recently upgraded to 6 major municipalities “六都”) in Taiwan that are big enough to seriously undertake FDI attraction and accurately represent the Taiwanese locality. The cities selected to participate were; Taipei, New Taipei City, 3 Brookings Institution. Metro, Global Cities Initiative. http://www.brookings.edu/about/projects/global-cities/exchange. (Accessed, April 2015).. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(15) . 5. Taichung, and Kaohsiung. The two cities which were most recently afforded the title of “major city” by the National Taiwanese Government, Tainan and Tauyuan, will be excluded, as they have not had equal capacity with the original four until recently, which could taint our results. 1.3 The Scale of Local “Relationship Building” So just how much are Taiwanese cities spending on non-economic international exchange? This research asks the following initial questions to paint a picture of the. 政治大. “relationship building” practice in Taiwan to consider the efficacy of such efforts in the. 立. attraction of foreign direct investment:. Exactly how extensive are the allocations towards “relationship building” at. ‧ 國. 學. 1.. the local government level?. ‧. How big are these departmental budgets?. 3.. How many government employees are needed to carry out local diplomacy?. sit. y. Nat. 2.. n. al. er. io. The following is an initial look at the case of Taiwan’s local government allocations toward “relationship building”.. Ch. engchi. i n U. v. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(16) . 6. Table 1: Local Government International Relations, Taiwanese Cities Taipei City International Relations Department Budget: 24,441,432 NTD. Office Size: 15 Professional Staff. New Taipei City International Relations Division Budget: 13,755,000 NTD. 立. 治 Size: 10 Professional Staff 政 Office 大. ‧ 國. 學. Taichung City Secretariat, International Relations Division. Office Size: 15 Professional Staff. ‧. Budget: 25,721,000 NTD. sit. y. Nat. n. al. er. io. Kaohsiung City Secretariat, International Affairs Division. Budget: 16,395,000 NTD. Ch. iv n Size: 10 Professional Staff e n gOffice chi U. Source: Local government departments. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(17) . 7. 2.1 The Evolution of FDI as a Research Agenda FDI started after WWII and primarily took the form of capital investment in countries where there was stability but also higher interests rates to benefit investors who had a lower return at home. The original theories that described FDI in this way, however, did not account for the imperfection of markets, but merely the net economic gain primarily from US investors in Europe and Japan (MacDougall & Kemp). As other countries began to invest as well, and investment turned back towards the US, theorists started to account for the imperfections in the investment markets.4. 治政 The next grouping of theories began to look at 大 FDI in terms of foreign owned 立. enterprises (FOE’s) operating in a domestic market that is dissimilar to their native. ‧ 國. 學. markets, especially in terms of language, culture, and legal systems. Hymer and. ‧. Kindleberger led the way in describing their success with the Industrial Organization and the Monopolistic Approach, through factors like economies of scale, technology,. y. Nat. io. sit. branding and marketing and cheap financing.5 Buckley and Casson took the approach one. n. al. er. step further in describing investment according to sector and industry with the. Ch. i n U. v. Internalization Theory (vertical integration).6 In 1973 Knickerbocker advanced his own. engchi. theory of imperfect market conditions that focused on the domestic markets and 4 Kemp, M.C. (1964). The Theory of International Trade. Prentice Hall, London. MacDougall, G.D.A. (1958). “The benefits and cost of private foreign investment abroad: A theoretical approach”, Economic Record, vol. 36. 5 Kindleberger,. C.P. (1969). American Business Abroad. Yale University Press, New Haven, CT, United States. Hymer, S.H. (1976). The International Operation of National Firms: A Study of Direct Foreign Investment. MIT Press, Cambridge, MA, United States.. 6 Buckley,. P.J. and M. Casson (1976). The Future of the Multinational Enterprises. Macmillan, London.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(18) . 8. resources, which encourages Oligopolistic behavior, whereby firms follow one another to foreign markets.7 Dunning finally rounded out the imperfect market theories with his addition known as the Eclectic Paradigm theory, taking into account all of the above considerations while adding; local policies, firm strategy, and agglomeration economies.8 One alternative to the mainstream theories surrounding the paradigm of imperfect competition is the Strength of Currency theory, posited by Aliber, which attempted to make a connection between FDI and currency valuation. However, his argument of weak. 治政大 countries like Canada, the USA and the UK. 立. currency nations attracting FDI from stronger currencies only applied to developed 9. One of the most recent explanations of FDI reveals the previous deficiencies in. ‧ 國. 學. the explanation of inter-firm business and supply lines, where one third of all. ‧. international trade is conducted between businesses. The Product Life Cycle Theory traces these lines in order to explain such phenomena as; competitive production. y. Nat. io. sit. advantage, labor markets, and de-industrialization.10. n. al. er. Yet another theoretical contribution has come alongside the development of. Ch. i n U. v. Regional Integration Agreements (RIA’s), originally conceived by Yannopoulos, with. engchi. early research conducted on the European Union and later, North America.11 Salike later F.T. (1973). “Oligopolistic reaction and multinational enterprise”, Division of Research, Harvard University, Cambridge, MA, United States.. 7 Knickerbocker,. 8 Dunning,. J.H. (1971). The Multinational Enterprise. George Allen and Unwin, London.. 9 Aliber,. R.Z. (1970). “A theory of direct foreign investment“, in C. P. Kindleberger (ed.), The International Corporation. MIT Press, Cambridge, MA, United States.. 10 Latorre, M.C. (2008). “Multinationals and foreign direct investment: Main. theoretical strands and empirical effects”, Cuaderno De Trabajo, No. 06/2008. 11 Yannopoulos,. G.N. (1990). “Foreign direct investment and European integration: The evidence from the formative years of the European Community”, Journal of Common Market Studies, vol. 28, No. 3.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(19) . 9. refined the RIA Theory by segregating inter and intraregional sources of FDI. He was able to distinguish more clearly the haphazard results of Salike by isolating those companies outside of the agreement, attempting to maintain their position in foreign markets, while those within were more interested in vertical integration. Those firms who are only interested in horizontal investment in new markets are less likely to invest in the countries where they have concluded RIA’s, eliminating protective import measures.12 Recently, the theoretical paradigm of foreign direct investment is being pushed to. 治政大Third phenomenon is carried out by 立. account for investment originating in developing countries and landing in developed countries. This new. World Multinational. Corporations (TWMNC’s). 13 These theories focus mainly on the advantages that. ‧ 國. 學. TWMNC’s have in developing countries; a reduced threat to big corporations, market. diaspora.14. ‧. diversification (away from an unstable home market and political atmosphere), and. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. N. (2010). “Effect of regional integration agreement on FDI: A theoretical perspective”, MPRA paper No. 31859. Munich University Library, Germany.. 12 Salike,. 13 Aggarwal,. R. and J.K. Weekly (1982). “Foreign operations of Third World multinationals: A literature review and analysis of Indian companies”, The Journal of Developing Areas, vol.17, No.1; pp. 13-30.. 14 UNESCAP.. Nayak, Dinkar & Choudhurry, Rahul N. “Asia-Pacific Research and Training Network on Trade: Working Paper, A selective review of foreign direct investment theories”. No. 143, March 2014.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(20) . 10 Chapter 2: Reformatting Existing FDI Theory to Account for Relationships. 2.1 Modern FDI Theory The cutting edge of FDI theory must account for two leading methods designed to understand the dispersal of investment, both globally and within a domestic setting. First, the Dunning OLI paradigm has given researchers a tool set to understand; 1) the decisions of the (O)wnership in moving operations abroad and thus the “why”, 2) the. 治政大 factors which, if met, (I)nternalisation contributing to our knowledge of the institutional 立 (L)ocation. specific advantages and thus the “where”, and 3) the concept of. can lead to FDI. Dunning’s theory has been used since the early 1990’s to explain, not. ‧ 國. 學. only why investment has landed in a certain country but also, why operations have left. ‧. their native markets in the first place. Dunning gives our research a steady base from. Nat. io. sit. especially those associated with “Location Specific Advantages”.. y. which to pull significant variables when analyzing the phenomenon of FDI locally,. n. al. er. Second, Wells and Wint contributed to our understanding of FDI determinants by. Ch. i n U. v. looking exclusively at locational factors and Investment Promotion Agencies (IPAs).. engchi. Their analysis utilized business marketing theory to determine how nationally funded investment promotion organizations “sold” themselves to potential investors. Their theory was, thereafter, narrowed to account for the effectiveness of spending on investment promotion by Morisset and Johnson. Since then, the IPA method has been. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(21) . 11. utilized by the World Bank in cooperation with Columbia University to construct a template for localities to follow when devising a strategic plan for investment attraction.15 Recently local practitioners and research institutions concerned with investment policy have been hinting at a shift in the current theory. In 2013-14, the Brookings Institution’s Global Cities Initiative undertook a major study of 28 municipalities in the United States (Seattle, Portland, Sacramento, San Antonio, etc.) to assist in creating local economic development policy concerning; (1) international trade and (2) foreign. 治政大 of “relationship building” for theoretical expansion by emphasizing the importance 立. investment. Their findings were published in 2014 and presented an excellent opportunity. activities in 2 out of 10 new variables.. ‧ 國. 學. 1. Global engagement must be a demonstrated priority.. ‧. Metro areas, like firms, must institute intentional and committed international efforts. io. sit. Nat. 2. Global commerce is driven by relationships and networks.. y. to gain the full benefits of global markets.. n. al. er. Metro areas generate value for firms by developing strategic relationships in high-. Ch. i n U. v. potential foreign markets and by forming strong public-private and federal-statelocal networks at home.. 16. engchi. 15 Wells & Wint. (2000). “Marketing a County: Promotion as a Tool for Attracting Foreign Investment”. Foreign Investment Advisory Service. World Bank. Occasional Paper No. 13. Morriset & Johnson. (2004). “The Effectiveness of Promotion Agencies at Attracting Foreign Direct Investment”. Foreign Investment Advisory Service. World Bank. Occasional Paper No. 13. 16 Brookings. Institution. Brookings Metropolitan Policy Program. The 10 Lessons from Global Trade and Investment Planning in U.S. Metro Areas. June 2014. Brookings Institution. Metro, Global Cities Initiative. http://www.brookings.edu/about/projects/global-cities/exchange. (Accessed, April 2015).. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(22) . 12 Although, the Brookings Institute is a policy-focused organization, their findings. have lent a new perspective to our understanding of the current theoretical paradigm of local FDI attraction. Their findings, do not establish a new phenomenon, but rather, are merely an initial look into what has already been taking place in local governments. Local, state and county level policy makers have been allocating funds to diplomatic initiatives in the hopes to build relationships for the purpose of economic exchange (specifically FDI). These “Relationship building” activities, however, are not. 治政大 organizations and cultural incubation of study abroad programs, support for ethnic 立. characterized by direct economic impact, things like; cultural and artistic exchange,. events, and sister city exchanges.. ‧ 國. 學. The budgetary allocations set aside to these local diplomatic agencies are. ‧. supplemental to those already set aside for economic development, establishing competitive FDI attraction incentives, labor and workforce development, the building and. y. Nat. io. sit. maintenance of infrastructure, constructing a competitive investment promotion strategy. n. al. er. and other proven avenues to international economic development. This indicates a. Ch. i n U. v. previously established recognition of “relationship building” as an influential determinant of FDI attraction.. engchi. 2.2 Framework: Dunning’s OLI Eclectic Theory The framework for our study will follow Dunning’s OLI model as it refers to (L) location specific advantages. Dunning’s model categorizes the (L) variables into four respective areas which explain a firm’s choice through the utility of profit maximization. In essence, a firm will seek discounted profits through a range of considerations related to. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(23) . 13. the location choice of an FDI project. Dunning separates location choice by a firm into the following areas: 1) Resource Seeking: Resource seeking behavior refers to MNEs making location choices based on the availability of; low rent or land cost; workforce availability (either skilled or unskilled depending on the industry); and the local cost of raw materials and other factors of production. 2) Market Seeking: Market seeking behavior refers to MNE’s making location choices. 治政大 or region; and access to products; market structure; distance from the host country 立. based on; local market size or growth; preferences of the consumer for individual. regional or global markets.. ‧ 國. 學. 3) Efficiency Seeking: Efficiency seeking behavior refers to MNE’s making location. ‧. choices based on; cost of resources and capabilities (i.e. electric power, land cost, rent, etc.); transportation and communication costs; industrial agglomeration factors. y. Nat. io. sit. (i.e. relative existence of R&D, level of employment in a certain industry, etc.); and. n. al. er. whether the local government entity is a cosignatory of regional trade agreements.. Ch. i n U. v. 4) Strategic Asset Seeking: Strategic asset seeking behavior refers to MNE’s making. engchi. location choices based on; technical and managerial assets; infrastructure (i.e. roads, ports, telecommunications, etc.); entrepreneurial or educational know-how; regulations on industrial competition.17. Zvirgzde & Daniel Schiller & Javier Revilla Diez, 2013. "Location choices of multinational companies in Ukraine," ERSA conference papers ersa13p219, European Regional Science Association.. 17 Daria. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(24) . 14. 2.2.1 Variables: Reformatting the OLI and IPA Theories Our research program is meant to incorporate local diplomacy and “relationship building” into the leading theories on FDI. Our study will make use of those variables deemed significant through the OLI and IPA theories in order to juxtapose our new variables, associated with the practice of relationship building. As we are narrowing the scope to account only for local government initiatives, those variables under the control of the national government, will be excluded or reformatted in such a way that they are. 治政大 variables to be included in this study. 立. made to account for the difference in domestic FDI dispersion. Below is a graphic of the. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Figure 1: OLI and IPA Frameworks Accounting for “Relationship Building” Variables. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(25) . 15 In order to evaluate the relevance of each independent variable we will need to. separate our study into two sections, quantitative and qualitative. This will allow us to first determine any possible relevance of a “relationship” variable before conducting in depth qualitative analysis. Ideally, the quantitative section will guide the research scope while a follow up with qualitative investigation could solidify theoretical relevance. For example, if “spending on diplomatic efforts” appears to be significant in the quantitative results, we will investigate further with local diplomats to determine specific policy. 治政 companies in that city, to ask specifically about that大 policy. For this purpose, the 立. objectives or areas of priority. Finally we would follow up with a survey of foreign. quantitative section will precede the qualitative analysis, and both will remain separate. ‧ 國. 學. with independent conclusions. In chapter 5, we will combine lessons from both testing. io. sit. Nat. 2.2.2 Quantitative Testing: Location Choice Trends in Taiwan. y. ‧. methods to evaluate the position of a “relationship” variable in future theory.. n. al. er. First we will carry out a conditional logistic regression as popularized in FDI. Ch. i n U. v. literature by McFadden (1974).18 This model prioritizes the relative profit maximization. engchi. value sought by a firm, which is provided to the firm by choosing either location-j or location-k. Below is the function for profit by firm-i which is derived by investing in location-j. The value-z indicates the specific qualities of a particular city (in our case; Taipei, New Taipei City, Taichung, or Kaohsiung).. (1) 18 McFadden, D. L. Conditional logit analysis of qualitative choice behavior. In Zarembka, P., editor, Frontiers in econometrics, pages 105{142. Academic Press, 1974.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(26) . 16 However, if the firm decides to invest in location-k. The function changes to read. as the following;. (2) Given the above functions for firm choice in locations-j and -k, then the following function assigns a Y=1 value for the firms choice to invest in location-k instead of location-j;. 立. (3). 政治大. In the conditional logistic model for determining which characteristics-z of each. ‧ 國. 學. location are relevant, we code the dependent variable (investor choice) to be a case value of “1” for the location that was chosen for an investment, while coding the control value. ‧. of “0” for all other locations in the group where the firm did not choose to invest. Given. y. Nat. sit. that our Y-i variable is random and indicates investor choice, then we can assume that the. n. al. er. io. following function allows us to assess the maximum likelihood of investor choice based on a set of independent, location specific variables;19. Ch. engchi. i n U. v. (4). Since this project will not be analyzing firm specific variables, we will not make use of dummy variables to account for qualities of the investing MNE, but rather will conduct an exploratory, macro level data analysis, in order to determine the potential 19 Deichmann, Karidis, and Sayek. (2003). “Foreign Direct Investment in Turkey: regional determinants”. Applied Economics. 2003, 35, 1767-1778.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(27) . 17. relevance of diplomatic activity at the local government level. Such firm specific characteristics might include; county of origin, operating budget, size of the firm, or degree of foreign ownership. Additionally, within our quantitative methodology we take on a level of limitation when using the conditional-logit model for only 4 choices for investment in Taiwan. This concept, known as the Independence of Irrelevant Alternatives (IIA), refers to the absence of additional choices that may have or may not have been considered by decision makers (i.e. Tokyo, Bangkok, Guangzhou or other. 治政 relative difference between choice options. However, 大 in our study the nearness and 立. industrialized cities in the region), and is commonly accounted for by distance and. similarity of choice in Taiwan provides additional obstacles. Our study can account for. ‧ 國. 學. this limitation by assuming that those investors included in this study were already. ‧. planning on operating in Taiwan and were therefore choosing between suitable locations on the island. Further, the primary test variable of relationship building, is only better. y. Nat. n. al. er. io. country or region.20. sit. tested by comparing local government variables once a company has chosen to invest in a. Ch. i n U. v. Our selection of indicators for each independent variable deemed relevant by the. engchi. literature were chosen on the basis of access to information and the metric’s ability to be representative of the location specific quality. Each case provides us with a glimpse at the relative capacity for profit maximization in the four cities chosen for our study, Taipei, New Taipei City, Taichung and Kaohsiung. and Nunnenkamp. (2010). “The Location Choices of Foreign Investors: A District-level Analysis in India”. Kiel Working Papers. Kiel Institute for the World Economy. No. 1628. June 2010.. 20 Mukim. Arrow, Kenneth Joseph (1963). Social Choice and Individual Values (2nd ed.). Wiley.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(28) . 18 Table 2 gives an overview of the data collected for each location specific (or city). variable and also includes a proxy variable for the IPA method as well as our own contribution, in the form of relationship building and diplomatic efforts. 21 Table 2: Location Specific Variables. Variable. Explanation. Exp. Sign Min.. Max.. Mean. Investment Dependent variable where denoting choice to invest. 0. 1. .25. GOVQ. Air quality as a proxy for good governance, total (suspended particulates). 38. 172. 78.13. MKTS. Average family income (100,000s NTD). 10.32. 16.98. 12.89. INFRA. Govt. spending on transportation (billions NTD). +. .75. 35.5. 11.34. AVGC. Average family expenditure on rent and utilities (1,000s NTD). −. 14.38. 30.59. 20.32. AGGL. Number of workers employed in the relevant industry (1,000s of workers). +. 0. 197.01. 37.95. IPASp. Govt. spending on investment promotion. +. 25.38. 6.04. DIPSp. Govt. spending on diplomacy (millions NTD). 10.33. 25.72. 17.01. SISCi. Investor headquartered in a sister city. 0. 1. .03. SISCo. Number of sister cities in the relevant source country. 0. 17. 5.19. n. e n g c h +i U +. sit. y +. 1.79. er. io. Ch. ‧. Nat. al. +. 學. ‧ 國. 立. 政治− 大. v ni. 21 Joyez, Charlie. (2015). “Location choices and foreign direct investment motives of heterogeneous firms.” LEDa - DIAL, Paris-Dauphine University.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(29) . 19. 2.2.3 Qualitative Testing: Surveying Taiwan’s MNE Managers The qualitative chapter will be broken into two sections. First, local government diplomats will be interviewed in order to determine policy commonality and difference among cities in in Taiwan. A semi-structured interview format will be used in person in either Chinese or English. Interviews will not be recorded and will not exceed 2 hours in length. As the purpose for the interviews is exploratory, topics may vary depending on the mood and direction of conversation, while maintaining a common vein which can. 治政大practices alike. Therefore, the can be tested to indicate success of common and specific 立. properly measure one city to the next. Interviews are expected to uncover variables which. organization of interview content will fall into two categories; “general” and “specific”.. ‧ 國. 學. After the content of the interviews has been analyzed, our study will use that. ‧. content to inform targeted survey questions, designed to gauge recognition of policies by investing managers. We will use an established 7-point, Likert scale survey to measure. y. Nat. io. sit. attitudes of relative importance from investing companies. The precedent for using such a. n. al. er. method can be found in similar research projects concerning FDI determinants; especially. Ch. i n U. v. Luo (2001, 2007) and Liu (2009).22 Combining interviews with surveys in this way. engchi. affords our research an informed perspective when formulating our survey. As such, we will be able to see, precisely, the attitudes of companies towards municipal diplomatic policy. In other words, was the decision to invest by the FOE influenced by the specific Yulong. (2009). “Factors Determining Locations Choice of Foreign Direct Investment in China: A Perspective from an Inland Province”, Massey University, New Zealand.. 22 Liu,. Luo, Y. (2001). Determinants of Entry in an Emerging Economy: A Multilevel Approach. Journal of Management Studies, 38, pp. 443-472. Luo, Y. (2007). Are joint venture partners more opportunistic in a more volatile environment? Strategic Management Journal, 28(1), pp. 39-61.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(30) . 20. policies uncovered in the interviews? Did the work of local diplomats in Taiwan make any difference?. 2.3 Data: FDI Projects, Municipal Policy, and MNE Managers A combination of interviews and statistics were utilized to paint the most accurate picture of Taiwanese municipal FDI attraction policy. The interviews were exploratory, in that the relevant data on government spending and investment promotion was highly. 治政大 of each major urban International Relations and Economic Development Departments 立 disparate among cities. It was necessary then, to first contact municipal bureaucrats in the. area in order to determine the relevant indicator for variables like; NT dollars spent on. ‧ 國. 學. investment promotion, budget allocation for diplomatic efforts, investment incentive. ‧. indicators, and diplomatic policy. Without having explored, first quantitatively followed by qualitatively, the individual policies for conducting these activities, we may have. y. Nat. n. al. er. io. diplomatic efforts.. sit. unintentionally misrepresented each city in terms of their respective promotion or. Ch. i n U. v. Having undertaken our primary data exploration, we then were able to distinguish. engchi. between the sources for measurement of each variable. They were as follows: I.. Interviews: Local Government Bureaus: a. Economic Development Departments: The Economic Development Department data concerns the variables associated with investment promotion efforts. First, the budget line items for things like business development “招商” or investment services ”投資服務” often will. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(31) . 21 contain line items specific to those indicated as relevant in the literature.23 b. International Relations Offices: The International relations offices were similarly assessed, however, the structure of the departments were quite similar to that of the Economic Development Departments. Typically, International Relations was an extension of the Secretariat or “秘書處”which was given its own line item, rather than an entire. 政治大 cities, while simultaneously. departmental budget. In depth interviews revealed discrepancies in policies among. 立. illuminating several. ‧ 國. II.. 學. shared characteristics of Taiwanese municipal diplomacy.. Surveys: Foreign Owned Enterprises (FOE) in Taiwan: The subjects surveyed. ‧. will be FOE managers in Taiwan. Questions will be directed specifically and. sit. y. Nat. exclusively at “relationship” variables in order to maximize responses. The. io. er. subjects of the survey will be branch managers of FOEs in each respective city. The assumption being that, any person in such a position would have. al. n. iv n C either been part of the company during the decision h e n g c h i U to invest or at least have insight into specific motivations leading up to investment. III.. Regional Economic Statistics Collected by the National Government: The Taiwanese National Development Council collects comprehensive economic, demographic, and environmental data on each region and county in Taiwan from 1975 to the present. Although some measures have dropped and others. & Wint. (2000). “Marketing a County: Promotion as a Tool for Attracting Foreign Investment”. Foreign Investment Advisory Service. World Bank. Occasional Paper No. 13.. 23 Wells. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(32) . 22 added within that time span, those relevant to our study were consistently gathered within the time frame of our case. IV.. Industrial Clustering Data: This data was obtained through a network of scholars at the National Chengchi University in Taipei, Taiwan, where a recent study, conducted by Dr. Janet Tan, established a comprehensive database on industrial clustering in Taiwan for the years 2006 and 2011.. V.. fDi Magazine’s Country Report (FDI): This report provides retroactive. 治政大 down to the locality. The the present, with destination and origin narrowed 立 comprehensive data on all investments in and out of the country from 2003 to. report also indicates the estimated investment amount, industry specific, and. ‧ 國. 學. company name/headquarter data, which will be useful in future projects. ‧. designed to further establish the potential causality between diplomatic. nor. local. government(s). gather. such. data. io. sit. Nat. national. y. activity and investment decision. This specific data was necessary as neither on. regional. n. al. er. destination/source. The city level destination and source data is especially. Ch. i n U. v. important in our initial analysis in order to trace variables such as, sister cities.. engchi. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(33) . 23 Chapter 3: Macro Trends, FDI Location Choice & Sister City Relationships. Our results are indicated in the section below. The model itself was significant with a strong likelihood ratio index; however, certain explanatory variables relating to the locality were found to be irrelevant. Despite the relatively poor performance of certain variables, the expected signs for the coefficients were all indicated as expected in Table 2 of the previous section. In this section, we will discuss the variables in detail, and try to. 政治大. account for their respective outcomes.. 立. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Figure 2: FDI Projects in Taiwan by City from 2003-2018, Source: CC-BY-SA-4.0. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(34) . 24. 3.1 Dunning’s OLI (Location Specific) Variables: First, let’s review the outcome of Dunning’s variables. Although Dunning provides the basis for each variable choice, our selection was also limited by data access, and therefore has followed in a manner in which we were best able to collect indicators for each determinant. Several authors have already utilized Dunning’s work and tested the variables in their own studies. However, our variable for GOVQ (quality of government) was primarily tested in order to evaluate the relevance of a variable that. 治政 concerned with local government policy, however, it 大 was important to determine the 立 would traditionally be measured at the “country” level. Since our research is exclusively. relevance of such a variable when the project parameters have been scaled down. The. ‧ 國. 學. measurement of government quality, air pollution (suspended particulates per. cm.. ‧. squared), was not found to be significant; however, the direction of the correlation was in agreement with our prediction. As air pollution decreases, investment levels should grow.. y. Nat. io. sit. Although this is not surprising, it has been worthwhile to test as it has been found to be. n. al. er. significant at the national level. According to Dunning & Lundan, the MNE is more often. Ch. i n U. v. searching for good governance and environmentally responsible locations.24 The failure. engchi. of GOVQ as a variable is likely due to the perception of a firm entering the Taiwanese market. The island is relatively small, and therefore local and national government quality is highly correlated, especially as it relates to environmental quality. The time frame of our study may have also played an important role in the outcome of this variable. Since our data on regional government is more comprehensive (beginning in 1975) than the statistics related to city-level investment, we are able to see a leveling off & Lundan. (2006). Multinational Enterprises and the Global Economy. Edward Elgar Publishing. Cheltenham. UK.. 24 Dunning. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(35) . 25. of variance in terms of air quality among Taiwan’s major cities. Beginning in the late 1990’s the air quality in every city in Taiwan began to simultaneously improve, eventually leading to a variance of less than 10% of the variance in previous decades. Our next variable, MKTS (market size), is one that is proven relevant time and again by studies specifically aimed at explaining regional FDI dispersion. 25 Our measurement of market size was an annual figure indicating average family income for citizens living in each municipality. In Taiwan, despite the geographic proximity of each. 治政大 B output indicates that for significant and followed the expected sign. The exponential 立. city, the variance of income is quite substantial. This particular variable was in-fact,. every 100,000 New Taiwan Dollars (NTD) increase in the annual average family income. ‧ 國. 學. of a municipality, the odds of receiving a new foreign investment project will increase by. ‧. an additional 1.5%.. Apart from the variable related to sister cities in a given county; the strategic. y. Nat. io. sit. asset-seeking variables have performed the best. The Infrastructure (INFRA) variable was. n. al. er. proven significant in the earlier work of Glickman and Woodward.26 The inclusion of. Ch. i n U. v. such a variable can be accounted for by studies carried out by Barrell and Pain and have. engchi. often followed a similar vector as our study in public sector spending on transportation.27 In the case of infrastructure spending, our model shows that for every additional $1 bil. NTD of local government spending on transportation, the odds of investment from a 25 Coughlin, C., Terza, J. and Arromdee, V. (1991) State characteristicsand the location of foreign direct investment in the United States, The Review of Economics and Statistics, 73(4), 675–83. 26. Glickman, N. and Woodward, D. (1988) The location of foreign direct investment in the United States: patterns and determinants, International Regional Science Review, 11(2), 137–54. 27. Barrell, R. and Pain, N. (1999): Domestic institutions, agglomerations and foreign directinvestment in Europe. European Economic Review, 43, pp. 925–934.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(36) . 26. multinational firm increase by 1.03%. The measure for industrial agglomeration or clustering has also been consistently relevant in the literature on regional FDI attraction.28 The measurement given was a labor registration for those working in a certain industry in each city. The expectation was that, the presence of more workers in the industry of concern would lead to a higher number of investments from those companies participating in that specific industry. Our results show this to be true, as each increase in relevant labor count of 1000 persons, the odds of investment grew by 1%.. 治政大to be explanatory in previous cost for rent and utilities per household. Although proven 立. Finally, the efficiency seeking variable in our study, AVGC, measured the average. studies, the costs associated with a specific community were not found relevant in our. ‧ 國. 學. model.29. Despite a negative sign, as expected, the correlation is totally insignificant. This. ‧. could be for two reasons. One, perhaps our model is improperly using rent and utility cost, where former studies have used tariff and labor cost indices. Second, Taipei was. y. Nat. despite a significant cost increase, 571 out of 734 projects.. n. al. Ch. engchi. er. io. sit. overwhelmingly chosen as a destination over New Taipei, Taichung and Kaohsiung,. i n U. v. 28 Feenstra, R.C. and G.H. Hanson (1997). Foreign Direct Investment and Relative Wages. Journal of International Economics 42 (3-4): 371-393. 29 Baldwin, R. and Okubo, T. Networked fdi: Sales and sourcing patterns of japanese. foreign affiliates. The World Economy, 2013.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(37) . 27. Table 3: Statistical Findings where the Dependent Variable is “Choice to Invest”. Category. Variable. Coefficient (z-stat). Exp(B). GOVQ. -.007 (2.197). .993. MKTS. .403 (4.008)**. 1.496. INFRA. .030 (8.999)***. 1.030. AVGC. -.013 (.022). .987. Location Specific (Dunning). ‧ 國. IPASp. .014 (.199). DIPSp. .057 (3.855)**. Nat. 1.887. .135 (10.932)***. n. er. sit. SISCo. io. .635 (3.553)*. Ch. i n U. v. Total Number of Cases. engchi. 1.014. 1.059. SISCi. al. 1.006. ‧. Relationship Build. (New). 立. 學. Investment Prom. (Wells & Wint). 政治.006 (9.831)*** 大. y. AGGL. 1.144 734. Notes: *, **, and *** indicate significance at the .1, .05, and .01 confidence level respectively. Model LR value =1085.28 3.2 Wells & Wint (Investment Promotion) Variable: The investment promotion variable, IPASp, indicated the amount of $NT Dollars allocated by each city in order to promote themselves as an ideal investment location for MNEs. An indication for each amount was gathered from the yearly budgets published by the Economic Development Departments for each city, back to 2010 in most cases. Thereafter an estimate was given for the years antedating the documents available online.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(38) . 28. In future studies, a more precise representation could be obtained through archival access, which may alter the results of future regressions. However, the variable for investment promotion spending was not found to be significant given our current level of data. In fact, this is somewhat to be expected. In the follow up research conducted on nationallevel IPAs, Morriset & Johnson reveal the intricacies of budget allocation and their association with investment results.30 Their study ranks the budget allocations for IPAs, which are more or less influential on the decision of MNEs, into the following categories. 1. Policy advocacy (strongest) 2. Image building (2nd). 立. 政治大. 3. Investor services (3rd). ‧ 國. 學. 4. Investment generation (least effective). ‧. They also find that investment promotion is only truly effective for a county between the ranges of $1 million to $11 million US. This information allows us to understand the. y. Nat. io. sit. problems when applying their theoretical contribution to Taiwanese cities. First of all, the. n. al. er. cities in our case, by their nature, do not share the same qualities of a nation as a site. Ch. i n U. v. selection. Perhaps first, a comprehensive application of IPA style theory should first be. engchi. pursued in a county where local level non-government IPAs are more similar to those at the national level (i.e. The United States). Second, every city except for Kaohsiung spent the equivalent of $1 million US, which is the minimum for their framework. Not only does this make their promotion efforts effectively equal, the relative activities allowed for under a minimum budget are not sufficiently variant. Finally, we notice that the most & Johnson. (2004). “The Effectiveness of Promotion Agencies at Attracting Foreign Direct Investment”. Foreign Investment Advisory Service. World Bank. Occasional Paper No. 13.. 30 Morriset. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(39) . 29. effective budget line item falls under the “policy advocacy” category. It is not surprising then, that a local government entity who is neither concerned with nor ethically able to influence policy would miss out on the most important component of investment promotion. With these considerations in mind, we can adequately account for the lack of significance in the IPASp variable. It may be that later consideration of specific budgetary expenses, and a more complete knowledge of the allocation of funds would yield a more precise understanding of the effectiveness of Taiwanese local government FDI attraction policy.. 立. 政治大. Table 4: Total Investment Projects from 2003-2018. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Source: Financial Times, fDi Magazine Country Reports – Taiwan. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(40) . 30. 3.3 Relationship Building (New) Variables: In the last three variables, we have selected statistics related to municipal diplomatic efforts. The three measures; spending on diplomacy (DIPSp), sister city source investors (SISCi), and number of sister cities in the source country (SISCo) were each found to be statistically related to FDI inflow to varying degrees. From here we will deconstruct each variable in order to assess the potential contribution of our study to the OLI model, as well as to guide further analysis which might establish “relationship. 治政大 3.3.1 Spending on Diplomacy (DIPSp) 立. building” as a relevant consideration for municipal policy makers.. The first indicator for local diplomatic efforts, DIPSp, was gathered by looking. ‧ 國. 學. through the itemized budget allocations for Taipei, New Taipei, Taichung and Kaohsiung. ‧. Cities. In the years from 2003 to 2018 the allocations of each department were consistently weighted in favor of Taipei, with Taichung eventually allocating a slightly. y. Nat. io. sit. larger budget. Interestingly, the significance of this variable indicates that perhaps the ca.. n. al. er. $1 million US watermark for diplomatic dollars is far more influential in Taiwan than a. Ch. i n U. v. similar level of spending in investment promotion activities. Perhaps it is due to the. engchi. manner in which they spend it; typically for high-level protocol, hospitality, conference hosting, and travel expenses. It’s also possible that a larger staff dedicated to diplomacy as compared to smaller units charged with investment promotion is able to make a bigger impact on their foreign counterparts, both in the public and private sectors. If this is the case, a follow up study designed to dissect diplomatic efforts and further explain the connection would be necessary. As it stands, the probability exponential for DIPSp tells us that an increase of spending on “relationship building” that. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(41) . 31. amounts to $1 million NTD increases the chance of an investor selecting that city by 1.05%. It would be conceivable that municipal diplomats are paving the way for business relationships to bear fruit in the form of tangible investment into Taiwanese cities. For instance, if a public-private delegation from the United States conducts a tour of Taiwan with the goal of expanding their export markets, government bureaucrats in each location may be responsible for setting meetings with local businesses, touring R&D facilities and industrial parks, or even facilitating high level meetings with political leaders. The MNE. 治政大This kind of assessment will direct their investment dollars from Taipei to Kaohsiung. 立 who may already be considering an investment project in Taiwan may be swayed to re-. have to wait for a deeper, qualitative analysis, which would include interviews with city. ‧ 國. 學. bureaucrats as well as business decision makers.. ‧. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Figure 3: Dispersion of Investment Projects by Industry and Country, 2003-2018. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(42) . 32. 3.3.2 City-to-City Diplomacy (SISCi) The second “relationship building” variable, SISCi, was the weakest, only showing significance at the 90% confidence interval. This measure indicated whether the investing MNE originated from a city where there was already an established sister city relationship. Although the instance of an investor source coming from a sister city appears to change the probability of investment from 50% to 65%, the statistical significance is tenuous at best. This loose statistical connection may be due to the. 治政大 If the cause is the latter, then there may be some explanations. 立. inappropriate application of the variable itself, or it may be unique to the Taiwanese case.. On one hand we note that the selection of sister cities by Taiwanese local. ‧ 國. 學. governments, is heavily related to the sources of their business. For example, the United. ‧. States (390 cases) and Japan (210 cases), first and second in terms of investment origin, were both prevalent in the choices for sister cities in Taipei, Taichung and Kaohsiung.. y. Nat. io. sit. This will be discussed further in the final variable. However, Taiwan’s third most. n. al. er. frequent investor, China, was not represented in the sister cities of any of the cities in our. Ch. i n U. v. case. This is almost certainly due to the precarious nature of Taiwan-China diplomatic. engchi. relations and may be skewing the relationship between the dependent and independent variable. Additionally Taiwanese national diplomatic policy may be leaking into local policy when city leaders are choosing their foreign partners. This seems especially true in Taipei where many of the countries who still recognize Taiwan as a sovereign entity are represented in their sister city ranks (i.e. El Salvador, Honduras, Marshal Islands, Guatemala, Nicaragua and until recently, Dominican Republic and Burkina Faso). This. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(43) . 33. kind of targeted relationship building may be beneficial to Taiwanese sovereignty claims, but could also be inhibiting any potential economic development effects. However, even if we were certain of the link between sister city relationships and investment attraction, we would need to be cautious when assuming the direction of causality. In other words, does a sister city lead to investment? Or is the business relationship making the sister city ties more natural? Therefore, we will need to conduct deeper qualitative analysis to assess the potential skew caused by Taiwanese national. 政治大. diplomatic policy and to assess the direction of causation.. 立. 3.3.3 City to Country Diplomacy (SISCo). ‧ 國. 學. Our final variable for relationship building was the strongest in the model, SISCo,. ‧. or the number of sister cities in the investor source country. Our statistical readout tells us with a 99% confidence interval that, for every additional sister city relationship in the. y. Nat. io. sit. MNE source country, the probability of investment increases by 1.14%. This distinction. n. al. er. is extremely important when evaluating the relative contribution that a newly conceived. Ch. i n U. v. “relationship building” component may make to the OLI paradigm. In some cases the. engchi. diplomatic efforts of Taiwanese cities tend to follow the national line. However, once the obligations of supporting the national level diplomatic agenda have been met, Taiwanese cities seem to be taking the reigns and creating their own priorities. In Taipei for example, there is a country-specific line item for Mainland China, while in Kaohsiung there is a separate funding account for specific areas of N. America and S. Korea. This points to an intentional prioritization of certain “areas” (county or regional) where Taiwanese bureaucrats have identified the most valuable recipients of. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(44) . 34. their diplomatic efforts. This all is in spite of the national agenda to avoid “official” diplomatic exchange with certain countries. While Taipei has been the most successful in attracting US sourced investment (17 sister cities), Taichung has appeared to utilize their relations with Japan (6 sister cities) to attract 216 out of 390 and 22 out of 68 projects, respectively. This trend appears to be quite substantial, but we should reiterate that it is merely a trend. We will need a further investigation to justify this variable as an important contribution to the current literature.. 3.4 Conclusions. 立. 政治大. Lets recount our case and the potential contributions we have attempted to make. ‧ 國. 學. to the current literature concerning FDI choice. First, the (L) location specific variables. ‧. pioneered by Dunning have largely withstood the Taiwanese test. The resource seeking (AGGL), market seeking (MKTS), and strategic asset-seeking (INFRA) variables all were. y. Nat. io. sit. relevant in the cases of MNE investor activity from 2003-2018 in Taiwan. However, the. n. al. er. national level (GOVQ) variable was inapplicable to the local setting. This was not. Ch. i n U. v. surprising given the data which showed air quality across Taiwan merging together as the. engchi. central governments led the localities towards a greener island, beginning in the 2000s. Also, the efficiency-seeking variable (AVGC) was inconsequential when predicting investment location in Taiwan. This much is apparent even to the local Taipei citizen who pays an inflated cost for their rent, in order to find close and gainful employment opportunities, which may be less prevalent in the Southern cities. Our attempt to apply Wells and Wint’s IPA theory, normally reserved for quasigovernmental agencies in the United States, was unsuccessful. This was most likely due. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(45) . 35. to the relatively low budget allocations for investment promotion-type activities. It may also be thanks to the clarifications made by Morriset & Johnson’s later contribution, which prioritized “policy advocacy” as the most effective method for attracting FDI (under the conditions of that organizational structure). Finally we have attempted to make our own contribution to the theory by introducing three new variables. First, our (DIPSp) variable helped illuminate the connection between a robust international relations plan at the city level and the. 治政大if the inhibitions of national relationships may be able to explain investor behavior, 立 incidence of foreign investment. Second, we established that Taiwan’s sister city. policy are removed. This will most likely require a similar model to be carried out in a. ‧ 國. 學. separate country that is simultaneously characterized by an independent municipal-. ‧. federal government link and the existence of foreign relations departments at the local level. Lastly, our most important contribution has been to show that cities may benefit. y. Nat. io. sit. from strengthening ties with specific countries by targeting desired relationships.. n. al. er. Already, Taipei and Taichung have been able to utilize their sister cities in the USA and Japan to attract new investors.. Ch. engchi. i n U. v. Although the evidence is promising for the introduction of a “relationship building” variable into the discussion on FDI, we will need to trace our steps to ensure a proper causal direction and gauge the efficacy of municipal diplomacy as a tool for economic development.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(46) . 36 Chapter 4: Comparing Municipal Diplomatic Policy & FOE Attitudes. This section is necessary in order to further investigate the relationship observed in the quantitative section. How can we be sure that the investment projects initiated in each Taiwanese city were, to some degree, caused by an existing diplomatic relationship? The danger is that we could misread the direction of causality. In other words, investment could lead to diplomatic interaction, rather than diplomatic interaction contributing to a. 治政 “diplomacy matters” when attracting foreign investment 大 into a municipal area. First, we 立. decision to invest. Our approach has taken two steps further in solidifying the claim that. have interviewed bureaucrats in each case city (Taipei, New Taipei City, Taichung, and. ‧ 國. 學. Kaohsiung) in order to define diplomatic policy and international efforts both in Taiwan. ‧. generally and in each respective city. By making a distinction between the norms for municipal diplomacy in Taiwan and the distinct qualities within each city department, we. y. Nat. io. sit. are able to simultaneously determine the value of a normalized method while comparing. n. al. er. best practices within Taiwan. Second, we apply that information to a survey, sent to each. Ch. i n U. v. investment project in our data source. Only by categorizing and then comparing efforts. engchi. from each municipal international relations section, were we able to design an appropriate survey, which would reflect an accurate impression of each city on investing managers. Our survey then is able to adequately assess whether the efforts being carried out by each city made any difference to the decision makers in the FOE.. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(47) . 37. 4.1 Interviews: Municipal Diplomatic Policy in Taiwan The interviews carried out were semi-structured, in-depth interviews with bureaucrats (officers, section chiefs, general directors, etc.) in the international relations offices of each city in our study. The interviews were carried out by the author in the time span of 1 month and conducted using a combination of English and Chinese. Some interviews were conducted solely in English or Chinese, while others shifted based on topic and mood. The language and time were chosen by the interviewees, and each. 治政大sections for each category; The outcome of the interviews are broken into two 立. interview did not exceed 90 minutes in duration.. The first, which observes a general formulation of municipal diplomacy across. ‧ 國. 學. Taiwanese cities and the second, which highlights specific efforts and difference in. ‧. policy objectives. Both are instrumental in designing an appropriate survey for FOE managers in Taiwan, allowing us to evaluate the impact of diplomatic efforts on their. y. Nat. io. sit. decision making process.. n. al. er. It is important to note, that while many of the efforts described in this section may. Ch. i n U. v. be common to all four of our case subjects, some may still have some variance associated. engchi. with them, especially in terms of the vigor with which they are carried out. For example, although all municipal diplomatic departments in Taiwan seem to be concerned with projecting an “International Image” to foreign partners or acting as a “consulate” or “window to the city”, Taipei seems to be most vigorous in providing material online, especially through their annual “Year Book” publication. On the other hand, Kaohsiung is known, even among other city diplomatic offices for having “The best know-how when preparing for foreign visitors. They are really aware of protocol norms and do their best. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(48) . 38. to make their guests feel at home. This is probably due to their director and section head.” In order to organize the entire picture of diplomatic efforts, they have been broken into a consumable set of ideas, including; Organization, Function, Accountability, National Government Interaction, Political Issues, Mainland China Issues, and Economic Value. This organization allows us to see city diplomacy in Taiwan from a bird’s eye view, without losing continuity when considering specific efforts or examples of exchange.. 治政大the city as a bureaucracy. Here Organization refers to the departmental role within 立. 4.1.1 Organization. we have learned, specifically, how Taiwanese cities generally value and assign the role of. ‧ 國. 學. municipal diplomats in the overall structure of city governance. Given its nature, this. ‧. section is noticeably absent of deviation between cities as compared to the following groups. Despite the similarity, it is still important to ascertain an understanding for how. y. Nat. io. sit. governing organization is similar, whether as a result of national law or through. n. al. er. emulation of best practices, in order to avoid attributing shared organizational. Ch. i n U. v. characteristics to one or two of the subjects unfairly. Also, further developing an image of. engchi. Taiwan as an investment destination when in competition with other countries in the same economic league provides us with supplemental conclusions, which can be utilized for research in a different context. Taiwanese municipal governance structure is, first and foremost, what American local government experts refer to as a “strong mayor” system. This system is the alternative to a vastly more popular system in the United States known as the “city manager” system. The difference lies in the wielder of executive power. “Strong mayors”. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.

(49) . 39. are elected officials at the head of the executive branch of city government, while city managers are typically hired by city council and the mayor to run the city under a contract that must be renewed periodically. In Taiwan, executive leadership is extremely powerful and policy making is not shared with city council, whose role is primarily oversight. In fact, almost every major initiative begins with paperwork on the Mayor’s desk and is pushed down a line of bureaucratic responsibility through a series of either dictations or delegations. When asked about policymaking and credit for success or. 治政 we have a new Mayor, the policies typically don’t change大 much but new efforts are 立. failure, one interviewee claimed that, “Everything passes through the Mayor’s hands. If. sometimes undertaken to show that the new leadership is active and achieving at a high. ‧ 國. 學. rate. This might include a new sister city relationship or the announcement to host an. ‧. international conference. The mayor takes credit for everything.”. With the recent exception of Kaohsiung, all city international relations offices fell. y. Nat. io. sit. under the umbrella of a “Secretariat”. This is essentially a department exclusively. n. al. er. designed to assist the city executive leadership. This also means that when exchanges. Ch. i n U. v. take place between local governments and foreign entities (local, national, or private),. engchi. typically there is a member of the executive team present and in charge–typically the Mayor or Deputy Mayor. For those visitors deemed less of a priority, the international section simply creates a link to the relevant department head, bypassing the Mayor (with approval) and providing assistance in the form of protocol services or translation. Finally, and in the context of policy planning, it is important to know that all department heads are typically political appointees. This similarity in structure, therefore, actually provides an opportunity for fundamental differences in objectives. For example,. DOI:10.6814/DIS.NCCU.IDAS.003.2019.A07.