Analysis of the Effect of CEPA on FDI to Mainland China from Hong Kong

Regional economic integration has got great achievements both in practice and theory since 1980s, which promotes the progress of the world economic liberalization. Besides the trade creation and diversion effect which had been researched widely, regional economic integration agreement also would create investment among members, and this dynamic investment effect now has been the main factor which pushes the progress of integration. Based on DID model and Gravity Model, this paper examines the influence of CEPA on FDI to Mainland China from Hong Kong by setting matched group, using 1998-2013 FDI from Hong Kong as sample. The conclusion is that CEPA and its supplemental agreements play a positive role on attracting Hong Kong FDI to Mainland China. With the transformation of development model in Mainland China, Hong Kong will invest more capital in knowledge-intensive Service industries in the future.