Trade Protectionism Shocks and FDI Divestment in Host Countries: The Role of Urban Supply Networks

Based on the data of prefecture-level cities in China from 2012 to 2020, this paper discusses the impact of Sino-US trade frictions on foreign direct investment (FDI) divestment in China. We find that Sino-US trade frictions will significantly reduce the scale of foreign direct investment, and slow down the growth rate. Our conclusion is still robust after the exclusion of endogenous and robust tests. Furthermore, we reveal that the learning, division of labor, and sharing mechanism generated by virtual agglomeration in the urban supply network is an important way for Sino-US trade friction to impact FDI in China. While improving the level of urban division of labor and market sharing, Sino-US trade friction has a negative impact on the exchange and learning between cities in the supply network node. We also observe that virtual agglomeration promotes the community interaction of FDI between node cities, and the geographical spatial distance in the dimension of urban agglomeration still plays an important role in economic activities.