FDI And Economic Growth In China

With the increasing amount of FDI in China, many scholars have studied on the issue "utilization of foreign capital" from different angles successfully. At the same time, "FDI and economic growth " has even become the focus. This thesis is aiming at investigating the relationship between FDI and economic growth, from a brand-new perspective of host country's FDI Absorptive Capability (FAC). The results would be of great important not only to the FDI in theory but also to the policy-making in reality.The theory analysis and empirical research of the dissertation are based on the following questions: (1) Whether FDI promotes the economic growth in China? (2)What's the theory of FAC, under the background of FDI promoting economic growth? (3) How does FAC affect FDI promoting economic growth in China?Firstly, the contribution of FDI to China's economic growth has been tested preliminarily, by analyzing cointegration relationship, error correction relationship and granger causality relationship between FDI and GDP from 1987 to 2006.Secondly, the FAC theory including renewed definition, determinants and proxy index system has been discussed completely.Thirdly, the four key elements of FAC, such as degree of openness, efficiency of financial market, human capital accumulation and innovation level have been selected to show the mechanism of how FDI promoting economic growth essentially depends on host country's FAC. We first analyze the channels of how four major determinants impact FDI promoting economic growth respectively. Then, on the basis of the product number increasing model, we construct the theoretical framework, regarding four key elements as the source of technological progress. Specially, a model of how domestic financial market affects FDI promoting economic growth has been set up, through channel of diversion effect of human capital.Finally, application of FAC theory has been made into China's economy to investigate the relationship of FDI and economic growth. Based on above theoretical framework, the thesis establishes econometric model and puts proxy index system into regression functions to test the effect of FAC on FDI promoting economic growth in China. Time series data and panel-data of 29 provinces during the period of 1987 to 2006 are used to prove the importance of host country's degree of openness, efficiency of financial market, human capital accumulation and innovation level in the process of FDI promoting economic growth. Furthermore, some policy recommendations about improving the FAC are put forward, according to the results of theoretical analysis and empirical test.Compared with other research, the characteristics of this thesis could be described as follow: First of all, this dissertation discusses a rather complete FAC theory, including its definition, determinants and index system, which would be very valuable to subsequent research. Then, the mechanics of FAC four determinants on FDI promoting economic growth are be explored in depth, which would not only provide a theoretical support for empirical research but also enhance the credibility of the empirical conclusions. And then, the conclusions of the thesis could be used to make some suggestions on attracting FDI from upgrading the FAC.