Policy Uncertainty and Enterprise Investment Location Choice in the Context of Domestic Market Integration

Abstract

Against the backdrop of global economic volatility and China’s push for a unified national market, domestic market integration has emerged as a key driver reshaping the investment environment for enterprises. Simultaneously, policy uncertainty—both domestic and international—has become a critical factor influencing firms’ strategic location decisions. This study examines the impact of policy uncertainty on enterprises’ investment location choices (intra-provincial investment, inter-provincial investment, and outward foreign direct investment) under the context of domestic market integration. Using data from Chinese A-share listed companies spanning 2010 to 2020, we employ multinomial logit models to test direct effects, moderating mechanisms, and heterogeneous impacts. The results reveal that domestic market integration significantly promotes inter-provincial investment, while internal policy uncertainty strengthens this tendency by encouraging risk diversification. External policy uncertainty, however, weakens the positive link between market integration and outward foreign direct investment, prompting enterprises to shift toward domestic inter-provincial investment. Heterogeneity analysis indicates that non-state-owned enterprises, large-scale firms, and those in eastern regions are more sensitive to these dynamics. Mechanism tests confirm that resource allocation efficiency, financing constraints, and technological innovation mediate the relationship between market integration, policy uncertainty, and investment location choice. Economic consequence analysis shows that inter-provincial investment and outward foreign direct investment both enhance enterprise performance (return on assets and total factor productivity) and contribute to regional economic development, with stronger effects in high-integration regions. These findings provide insights for enterprises to optimize investment strategies amid policy volatility and for governments to formulate policies promoting market integration and stable investment environments.Domestic Market Integration