Fdi, Institutional Change And Economic Growth

Along with the development of internationalization,FDI plays more and moreimportant role in economic growth. Such"dominant effect"as Capital Accumulation,Technology Spillover,Upgrading of Industrial Structure and so on have already beenpaid enough attention,however,the implicit effect of Institutional change of FDI haslittle been concerned. In recent years,with the quantity of FDI flowing into emergingmarket is increasing,this implicit effect has attracted more and more attention. As totransition countries,admission of foreign investment itself is a kind of institutioninnovation. Leading into foreign investment means introducing a new investment body,anew ideal of income distribution,a new manner of resource allocation and a newenterprise management system,this local institution arrangement has and havingincreased the speed and decreased the cost of institutional change of host country by"push"strength (the so called imposed institutional change effect) and"pull"strength(the so called induced institutional change effect).Including institution into the regime of economic growth study has been a custom ofMarxism economics and western economics. Factor accumulation,technology progress,education level,resource distribution,macroeconomic stability,legal efficiency,international trade and even religious belief are all brought into the frame of economicgrowth. In the opinion of new institutional economics school,the fundamental reason ofeconomic growth is institutional change,especially in transition countries. With theexpansion of 2007"Subprime Credit Crisis",CEE and CIS countries have plunged intograve crisis. Therefore,the key task for these countries at present is to restrain depressionand decrease volatility. While discussing the reasons of crisis,FDI seems to be themodulator driver of economic volatility instead of the stimulus of economic growth. FDIis now playing a role of Xiaohe who is responsible for not only the success but also thefailure of the affair. A through study about the relation between FDI and the economicvolatility from a prospective of institutional change is very interesting.This thesis firstly attempts to study the effect of FDI to institutional change intransition countries.And then the author includes the factor of institutional change intothe theoretical analysis and empirical study of the relation between FDI and economic growth and economic volatility in transition countries. Further discussion is how FDIinfluence the economic growth of CEE and CIS countries in the"Subprime CreditCrisis".This thesis comprises of 9 chapters,main content of each chapter is presented asfollows:Introduction covers the theoretic and practical value of this thesis,research methodand technical route used in this thesis,definitions of relevant concepts,and also the maininnovations and drawbacks of this thesis.Chapter 1 makes a review of the literature and makes systematic sum-up andcomment on the effect of institutional change of FDI and the relation between FDI,institutional change and economic growth and economic volatility.Chapter 2 gives a detailed investigation of the history and current status of FDI inCEE and CIS countries and also makes a comprehensive comparison between these twokinds of countries. Buy use of the abundant and accurate data,the author makes adetailed research on the background(the privatization process),the stage,the investmentmanner,the industry distribution,the home countries,the preferential policy and the maininvestors of FDI in representative countries of Poland,Czech republic,Hungary,Russia,Ukraine and Kazakhstan and also gives a sum-up for every country. Through furtherresearch,this thesis concludes the differences on FDI in CEE and CIS countries andnamed the FDI flowing into CEE countries as"institution guidance"and the FDI flowinginto CIS countries as"resource guidance".Chapter 3 firstly analyzes the general principle of how FDI has effects oninstitutional change in transition countries:there is not only imposed effect ofinstitutional change but also induced effect of institutional change,not only influence onmacroeconomic level but also microeconomic level,FDI also has an influence oninstitutional change of transition countries through its influence on host countries'ideology and there exists path independence. On the basis of general analysis,this thesisgives a detailed analysis on the effect of FDI to institutional change in transition countries.On macroeconomic level,the main effects are that FDI promotes the process of buildingup the market economic mechanism which is based on private property in transitioncountries.On microeconomic level,the effect is that FDI is helpful to establish modementerprise management system in transition countries. Chapter 4 put forwards a uniform frame for institution analysis by a thoroughcomparison of Marxism economics and western economics. According to the reality ofCEE and CIS countries,the author then presents a PME model based on the above frame.This thesis examines the effects of FDI on institutional change based on the PME model.The results show that FDI promotes the establishment of private property,theimprovement of market economics mechanism and enterprise management system.However,FDI has no obvious influence on the speed of internationalization and limitedinfluence on the change of macroeconomic regulation mechanism in transition countries.The results also indicate that the more significant of commercial competition the moreevident effect of FDI on the change of enterprise management system and the moreremarkable difference of higher education level between host country and homecountry,the more prominent effect of FDI on the change of enterprise managementsystem.Chapter 5 constructs an endogenous economic growth model involving the factor ofFDI and institutional change. By puting forth the concept of effective labor throughcombination of institution and labor force,this thesis extends the Solow model. In thismodel,as an external variable,FDI influences economic growth through its effect oninstitution and finally on effective labor force. The equilibrium solution of the modelshows that FDI have influence on the speed of capital accumulation,the speed ofinstitutional change,and the speed of effective labor force growth and the speed ofeconomic growth.Chapter 6 makes a comprehensive empirical study about the relation of FDI andeconomic growth of host country from a perspective of institutional change. The resultsindicate that the relation is more significant after involving the factor of institutionalchange,which shows that on one hand the effect of institutional change of FDI should notbe neglected and on the other hand constructing proper environment is essential to satisfythe need of FDI to stimulate economic growth of host country. In a word,theestablishment of private property has no obvious influence on economic growth duringthe sample period,the market economic mechanism and enterprise management systemhave significant influence on economic growth. Furthermore,the results also indicate thatthe institutional change effect of FDI of current period has not obvious influence oneconomic growth of host country and FDI with a lag of 2-3 periods has comparatively strong influence on economic growth. Comparative test between CEE and CIS countriesshows that FDI has more strong influence on economic growth in CEE countries than thatin CIS countries.Chapter 7 carries out a through research on the relation between FDI and economicvolatility from a perspective of institutional change. Theoretical analysis shows that FDImay decrease macroeconomic volatility of host country through several ways such assteady capital supply and increase macroeconomic volatility through ways such asincreasing the economic frangibility of host country relative with the home country.Empirical analysis indicates that the development level of financial market,the enterprisemanagement system,the manner of macroeconomic regulation,the legal quality and soon have influence on the effect of FDI to macroeconomic volatility. Meanwhile,thehigher per capita GDP and the higher ratio of industrial production to GDP in thebeginning of opening,FDI has more inconspicuous influence on macroeconomicvolatility of host country.Chapter 8 discusses the relation between FDI and the economic growth of hostcountries in the"Subprime Credit Crisis"by use of the above analysis frame and thestatistical and predicable data of CEE and CIS countries,also from a perspective ofinstitutional change. We find that FDI of"resource guidance"flowing to CIS countrieshas more conspicuous relation with macroeconomic volatility of host countries in thiscrisis rather than FDI of"institution guidance"flowing to CEE countries. And the highdegree of internationalization and bank opening together with incomplete arrangement ofprivate property increase macroeconomic volatility. We also find that countries with lowGDP,low industrial development and high ratio of raw material export at the beginningof opening are more fragile in this crisis.Chapter 9 is the sum-up of this thesis. After systematic summary of the conclusionsof the above chapters,the author concludes the main enlightenments from the success andfailure experiences of CEE and CIS countries on utilizing FDI in China.