How Effective Are Investment Promotion Agencies? Evidence from China Bin Ni * Yasuyuki Todo † Tomohiko Inui ‡ May, 2015 Abstract Using both firm-level and city-level data from National Bureau of Statistics, and unique information on investment promotion agencies (IPAs) in China, this paper mainly evaluates how this government policy affects the foreign direct in- vestment (FDI) in terms of intensive and extensive margin. After controlling po- tential determinants of FDI and correcting for the endogeneity problems, we find that the existence of city IPAs does not necessarily lead to the growth of foreign investment in all cases. In contrast, the number of IPAs in a city has positive and significant effect on increasing the subsequent investment of individual firms. In the further verification of the employment decision made by foreign investors, we still find the number of IPAs is a more influential factor, but only in the city level. This indicates that the influence of IPAs on foreign firms is proportionate to the effort made by the city government, but not the establishment of IPAs itself. This has been verified by using quality-differentiated IPAs as a proxy for IPAs’ ex- istence. Given the fact that the most successful IPAs are located in cities with the highest business potential, we believe that the decision-makers of China should re- consider the strategies, such as how to attract more FDI into less developed regions and boost their economic growth. JEL classification: F21, F23 Keywords: China, investment promotion agency, firm-level data, employment. * Corresponding author. The Graduate School of Economics, Osaka University (jiadaniel@hotmail.com) † Graduate School of Economics, Waseda University ‡ Faculty of International Social Studies, Gakushuin University 1