Abstract: For a long time, the regional distribution of China’s industrial investment has been extremely uneven. However, few literatures have studied this issue from the perspective of incomplete contracts. On the basis of constructing an investment decision model by introducing the concept of incomplete contract, this paper conducts an empirical study with the data of 26 industries in China’s 30 provinces. The findings show that efficiency in contract enforcement is a decisive factor of industrial investment in China, its positive impact on the regional industrial investment will be increased with the growth of the industrial contract intensity. This paper chooses the reasonable instrumental variables to overcome the endogenous problems of contract enforcement efficiency. It adopts the two-stage instrumental variable method to carry out the regression; the results show that the impact of contract enforcement efficiency on the regional industrial investment is still significantly positive. In a series of robustness tests, it can be seen that the above conclusions are very robust.

Key words: industrial investment; incomplete contract; contract enforcement efficiency