E-Government and Foreign Direct Investment: Evidence From Chinese Cities

Introduction

Foreign direct investment (FDI) plays a key role in driving economic growth (Logun, 2020; Zhang, 2001). When multinational enterprises (MNEs) choose where to invest, one of the key factors they consider is the market environment, which crucially depends on government efficiency (Ellis et al., 2017). Due to the complexity of economic management, as well as checks-and-balances built into modern governments, the power and functions of authorities are commonly dispersed among various agencies, which often have varying locations, procedures, criteria, and agendas. This means that MNEs need to navigate diverse bureaucratic procedures and multiple relationships in interactions with multiple agencies. Approvals from various agencies may not occur sequentially but in parallel. For example, when a government promises to provide subsidies to high-tech firms through its sci-tech agency, the sci-tech agency first determines whether the applicant firms meet the criteria of ‘high-tech enterprises’. Meanwhile the registry agency requires each firm to obtain high-tech status from the sci-tech agency before processing can commence. Given such bureaucratic inconsistencies or difficulties, approval processes that depend on multiple agencies can be protracted and provide government officials with more opportunities to pursue rent-seeking activities. As a result, firms face higher costs, and also lose confidence in the governments with whom they are dealing.

In this era of the digital economy, e-government, where government functions are moved online, can alleviate these challenges. Ideally, e-government can coordinate and streamline the procedures previously carried out by multiple agencies. In other words, e-government transfers one-to-many interactions into one-to-one interactions. In so doing, the firm faces only one e-government portal. This digital pattern can be viewed as a new type of crowdsourcing with the advantages of being flexible, cheap, fast, convenient, transparent, fair, and cost-effective (Huang & Bwoma, 2003; Luna-Reyes et al., 2012; Noor et al., 2011; Tung & Rieck 2005; Wang & Liao 2008; Wescott, 2004). Depending on circumstances, a task, problem, or project can be solved and completed by dealing with a group of agents simultaneously (Logun, 2020; Zhang, 2001). Facilitated by e-government, firms can access information more quickly, interact with government at lower cost, and face less uncertainty, thereby enhancing government accountability and reduce opportunities for potentially corrupt activities (Krishnan, Teo & Lim, 2013).

In the infancy stages of development, studies focused on relationships with citizens. E-government enables citizens to participate in public management by making government data accessible and providing online communication channels (Yang et al., 2019; Dong et al., 2020). This process increases transparency (Kassen, 2017), lowers discretionary power, and reduces corruption (Bhuiyan, 2011; Krishnan & Teo, 2012; Nistor & Adela, 2014). By so doing, e-government increases citizens’ confidence in their governments (Picazo-Vela et al., 2012), and improves the governmental decision-making process (Lazarioiu, 2015). Also, existing research discusses the effects of government subsidies from various perspectives, such as operational efficiency (Dube, 2003; Kebede, 2006), production capacity (Cotti & Skidmore, 2010), research and development activities (Cantner et al., 2019; Liu & Shieh, 2005; Gorg & Strobl, 2006), employment (Girma et al., 2008), and export competitiveness (Desai & Hines, 2008). In emerging economies, such as China, subsidies are widely used by local governments to promote industry advancement and economic growth (Chen et al., 2008). In addition, a number of existing studies have investigated the effect of FDI on economic growth (Kyuntae & Hokyung, 2008; Wu & Chen, 2016). For example, Wu and Chen (2016) demonstrated the positive impact of FDI on urbanization. In coastal regions of China, MNEs invest heavily in labour-intensive manufacturing and service industries by taking advantage of relatively low labour costs. Kyuntae and Hokyung (2008) concluded that FDI plays a key role in achieving strong economic growth in both the short and long terms, demonstrating a significant bidirectional relationship between FDI and economic growth in Ireland.