| Since mid-1990's, China has shown the sign of deflation. Many comprehensive studies ,based on different points of view, explained the causes of deflation. In this paper, we try to explain this phenomenon from the point whether foreign direct investment has affected the transformation of saving and investment.Theories of Foreign direct investment (FDI) can essentially be divided into two categories: Micro theories and Macro theories. The early literature that explains FDI in microeconomic terms focuses on the desire of Multinational enterprises to expand their market powers. Subsequent literature centered more on firm-specific advantages, owing to product superiority or cost advantages, stemming from economies of scale, advanced technology and so on. According to this view, multinationals find it cheaper to expand directly in foreign countries rather than through trade. In recent years, there is also a large literature on FDI macroeconomic effects. Such literature studies the different forms of spillovers from inward investors in the form of new technologies, new ideas and capital accumulation on the growth of output in the domestic economy. This paper also focuses on the FDI macroeconomic effects, studying whether FDI affects saving-investment transforming in china. We find the simple regressive equation of saving and investment unable to explain our proposition. Then we try to analyze whether FDI crowds in or out domestic investment and whether FDI affects domestic firms financial constraints. There is rarely Chinese literature on these subjects. Using econometric model, this paper shows following results: (l)during 1980-2000, there has been strong crowding out of domestic investment by FDI; (2) during 1987-2000, borrowing by foreign firms exacerbates the financial constraints of domestic firms. Using region-level data from China for the same period, we validate the results above. We still try to explain the deflation and other macroeconomic phenomena of China. |
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